Truckload spot and contract rates seeing a summer bounce, says DAT

Like the summer weather in many parts of the country, the current state of the truckload contract and spots market remains in a good spot.  

That’s the word from DAT Solutions, a subsidiary of Roper Industries, based on different data sets it has issued throughout this summer for different periods.

Following a very strong June, the month of July essentially continued to tell the same story of a strong truckload spot market for various reasons and that bears out in most of the data:

• spot market loads were up 89% annually;
• spot market capacity was up 0.3%;
• van load-to-truck was up 81%;
• spot van rates were up 9.8%;
• flatbed load-to-truck was up 156%
• spot flatbed rates were up 14%
• reefer load-to-truck was up 68%;
• spot reefer rates were up 7.8%; and
• fuel prices were up 3.8%

And now with August half over, DAT is pointing to continued strong momentum, citing unusually strong demand for freight, paced by gains for national average van and flatbed rates, as well as reefer rates, too. And it added that load-to-truck ratios were also up for vans and reefers in part to increased activity in the Midwest.  

“There’s a lot of freight out there for vans right now, and August had a stronger start than any month in more than a year and a half,” wrote DAT analyst Peggy Dorf in a blog posting. “National average rates recovered 3¢ per mile last week, due to a boom in freight heading into population centers in the Northeast. Those lanes are associated with retail, and the cargo may include last-minute merchandise for the back-to-school season. That’s not just notebooks and pencils, but also clothing, shoes, non-perishable foods, and anything that will fit into a backpack or lunch bag when school starts up.”

In a recent interview, DAT industry pricing analyst Mark Montague explained that the last truly strong year for trucking was 2014, but at the end of 2014 oil prices collapsed with so much fracking activity, coupled with world oil supplies coming on with Iran and Libya back in play, that it became unprofitable to keep that oil activity going. He also noted that the investment in drilling equipment and pipeline dropped as demand fell off, and then the spot market began a long slide through 2015 that did not let up until 2016.

“[But] contract rates continued to have some momentum in 2015 and by 2016 they were flat to negative and that has continued to be the narrative heading into 2017,” he said.

As to what is driving spot and contract rate increases, Montague said that it is likely a combination of more midsized fleets and a few smaller fleets having converted to the pending December 18 ELD (electronic logging devices) mandate, as per the Federal Motor Carrier Safety Administration, along with a decent economic momentum.

These factors, he said, are likely to lead to around a 3% gain on the contract side. But that came with a caveat that there would be less confidence in the 3% estimate if the ELD mandate was not coming.

“Right now, it is a demand driven story, and as the DAT North American Freight Index [a measure of conditions on the spot truckload freight market] shows there is a lot more demand out there for all three types of services,” said Montague. “The backdrop is that there is really a small story of some capacity being lost due to ELD conversion, which is happening slowly, and there is also a big push by all of the little guys in that they need to do something or exit the industry. Whatever choice they make is going to hurt the supply side capacity right at the height of e-commerce shopping season in December.”

Expanding on the timing of the ELD mandate, he said that FedEx and UPS should be petitioning FMCSA to move the December implementation date back to early 2018, stating that the first quarter would be the ideal time to do it, rather than December, which is widely viewed as one of the most hectic months of the year.

As for the intersection of e-commerce and the spot market, ELD aside, Montague circled back to July, observing how rates headed up to start the month and were spurred on by Amazon Prime Day, too, with the result being that a good amount of freight was moving on lanes associated with retail movement, not industrial movement. This was evident, he said, in the densely populated Northeast, with a fair amount of truckload freight splintering into places doing last-mile delivery. 

“It is interesting that the spot market and e-commerce are very linked,” he said. “Looking at the regular retail cycle that would start to build in June into the peak months of Sept and Oct would be more of a contract play. But all of a sudden you have last minute spikes on a supply basis rather than a demand basis and the spot market is definitely capped for that capacity.”

DAT’s Dorf added that last year there was a lot of truckload movement that can be traced back to between Thanksgiving and Christmas, with Amazon and other e-tailers moving truckload movements among distribution centers and ultimately closer to consumers via truckload and then to last mile or a distribution center.

“And that is why we are seeing this in the spot market, because most spot movements are truckload-based with amazon and others consolidating in their own warehouses and then moving stuff among warehouse with spot market trucks.

One observation is that shippers have really held the line against rate increases over the last year and a half and the spot market is starting to respond to some of these market pressures.”

Montague and Dorf said they are seeing some of the bigger carriers take a look at the spot market, and they are planning on putting a little bit of their capacity into the spot market.

“We have had more queries from top 50 carriers in last few months than at any other time,” said Montague. “Rates in the spot market are up 10%and contract rates are flat. That means you need to take a second look at your shipper commitments and say ‘let’s go a little more where the action is,’ and that is why the spot market leads the contract market. You have some blue chip shippers that pay immediately and leverage best practices, and you want to maintain those relationships. But there are others with whose freight you are not so sure it is worth it and rather than give that shipper 10-15 trucks it now may be 5-10 and that is having a cascade effect where they have to scramble.”

As for how the freight economy looks for the remainder of 2017, Montague called it healthy and when paired with signals from external data could be consistent with GDP around 2.5%.

One negative is slipping auto sales, but he said other things are hitting nice numbers, including consumer and retail sales data, as well as good food production signs, which helps to drive capacity and compete with other segments.