Bottlenecks boost US LTL market rates as demand plateaus, for now
Spot rates in the US truckload market have fallen over the recent months and appear ...
The US trucking industry has lost its swagger – demand and rates are still high, but tender rejections and pricing have trended downwards in recent weeks.
In conjunction with soaring fuel costs, this is hurting small operators, above all.
After a strong run that propelled pricing to record levels, the trucking market has been losing momentum, prompting the question of whether a recession might be imminent.
Spot rates have retreated and tender rejections have fallen and, as a result, bank analysts have downgraded trucking stocks.
On average, dry van rates sank eight cents in the first quarter, continuing the downward trend into April, to end up over 5% lower than a year earlier. Tender rejection rates have fallen from 25.76% a year ago to 9.92%.
And now speculation has begun to mount about a recession: JP Morgan warned a freight recession was inevitable; Bank of America located trucking demand “near freight recession levels” last week. This would have ominous ramifications for the US economy, for which the freight sector is often viewed as a bellwether.
The US Bank Freight Payment Index, published on 20 April in conjunction with the American Trucking Associations, shows a 2.2% drop in truck shipments in the first quarter against Q4 21, noting that it was the second consecutive quarter of retreating volumes.
On the other hand, freight spend was still up 1.2% over the previous quarter and 27.5% higher than a year ago.
The analysts who produced the Cass Transportation Index Report, published on 13 April, described the freight market as being in a “slowdown”, but said it was too early to call it a recession.
A closer look at the numbers shows a divergence between major sectors of the US trucking market. Rates and tenders have declined for dry vans and in the temperature-controlled truckload segments. Flatbed, LTL and last-mile operators have not suffered declines.
The same picture applies to load-to-truck ratios, which have sunk for dry van and reefer trucks.
Moreover, the bloodletting has played out in the spot market, whereas contract rates are still going strong. Several observers have concluded that, rather than a broad decline, the market is seeing a shift from spot to the contract market.
DAT Freight & Analytics noted that contract rates for van and reefer trucking had reached record levels, while truckload spot rates had fallen as much as 15%.
This is ominous for small truckers, who rely heavily on the spot market. The number of owner-operators has exploded over the past couple of years as many drivers left employment to strike out on their own. But they have neither the ability to convert traffic to contract basis, nor the pockets to cope with the drastic increase in fuel costs.
For shippers, the high fuel costs have brought a stronger focus on cost control, which has been a major driver of the migration from spot to contract rates. This has gone hand in hand with a weakening emphasis on speed of delivery.
“Surging diesel prices added to a truck freight market already at very tight capacity due to a lack of drivers and equipment. This confluence of challenges put significant spending pressures on shippers,” said Bobby Holland, US Bank VP and director of Freight Data Solutions.
Arguably, this has strengthened the case for intermodal solutions, where the fuel surcharge is about half as high in trucking. However, continuing rail performance issues and a shortage of chassis are making shippers think twice about this option. They are more likely to explore other solutions, along the lines of optimising trucking utilisation.
In mid-April, Transplace unveiled a tech-enabled offering that identifies cross-customer opportunities for LTL and partial truckload freight. OptiPro aims at freight consolidation through shipment collaboration and LTL pooling.
“It’s imperative that shippers have the tools to navigate market challenges and unlock capacity, flexibility, and automation when and where they need it,” said Frank McGuigan, CEO of Transplace. “OptiPro allows shippers to have increased confidence to plan and move freight efficiently amid market uncertainties.”
In the current climate, such tools are commanding more attention from shippers, recession or no recession.