Negative freight rates – the meltdown
How and why we get there
US importers and domestic shippers are facing more pain from increasing road and rail freight rates.
The surge of imports that has flooded US west coast container gateways has so far failed to return intermodal volumes to last year’s levels, but rates have soared.
On US roads, the picture is similar, with spot rates approaching record levels and expected to rise further.
Union Pacific and Burlington Northern Santa Fe (BNSF) have been riding high through the summer on intermodal imports from the west coast, notably the ports of Los Angeles and Long Beach, which have struggled with rising import volumes from Asia.
Both Class I rail carriers have enjoyed growth north of 20% in intermodal traffic since April and have upped pricing out of west coast ports.
The rising tide of imports has largely been attributed to restocking and to the e-commerce juggernaut. According to the National Retail Federation, retail sales inched up 0.6% from July to August to end up 2.6% higher than in August 2019 – lifted by online shopping going up 22.4% year-on-year.
Despite this boost, US rail volumes remain considerably below pre-Covid-19 levels.
According to the Association of American Railroads (AAR), in the second week of September carloads were down 15.2% year on year, while intermodal containers and trailers were 5% down. Over the first 37 weeks of the year carloads were down 15.8% and intermodal units down 6.9%.
Intermodal traffic has recovered since hitting bottom in April, when volumes were down about 20%, according to AAR statistics. This momentum lasted through August, with most of the drive coming from domestic traffic.
The Intermodal Association of North America (IANA) recorded low single-digit improvements in August in both domestic containers and trailers, whereas international containers actually retreated 2.7%, which the organisation attributed to the effects of the pandemic and the US-China tariff conflict.
Overall, intermodal volume has not yet fully made up the ground lost earlier in the year, with shipments down 2.7% year on year. For the first eight months of 2020, IANA shows traffic down from last year across all categories, although domestic containers were only 0.1% lower.
Arguably domestic traffic could be trending above 2019 numbers, but the intermodal sector has been facing strong competition from trucking – while rates have risen in both segments, the increases on the intermodal side have reached levels comparable to truck rates, while hikes in trucking rates have been alleviated by low diesel costs.
Nevertheless, trucking customers are feeling the pinch. The August update of the DAT Truckload Volume Index, which is published monthly by DAT Freight & Analytics, shows spot rates near record highs, with a new high for vans, where the average linehaul spot rate reached $2.02 per mile.
As on the intermodal side, rate increases trumped volume trajectories. Spot reefer volumes sank 5% from July to August, but the spot rate advanced 14 cents; the national average flatbed spot rate climbed 10 cents despite a 6.3% decline in volume.
The CASS Freight Index Report for August predicts upward momentum in volumes going forward, building on recent improvements. It shows the US shipment volume for that month down 7.6% year on year, compared with a 13.1% drop the month before. Likewise, transport spend improved from a 9.9% slump in July to a 5.1% drop from August 2019 levels.
The report’s author predicts further progress. “All signs point to an improving economy, and goods movement is getting better every month,” he wrote, adding that freight spend is set to increase with not much capacity due to come onstream.