Is the Freight Market Recession Improving?
The freight market is notorious for having a life of its own, but the difference between 2018 and 2019 was an eyebrow-raiser for sure. Industry experts say the 2018 spikes in volume were higher, and the declines more rapid, than ever before. In Q3, we saw what appears to be the beginning of a correction to the market, a good sign for the industry.
The beginning of Q3 initially looked dismal with loose capacity, tender rejection at an all-time low, and freight volume significantly down from last year. It was good news for shippers who were pleased with high tender acceptance rates. Finding trucks was easy, and pricing was significantly down from 2018. On the flip side, less demand and not moving as much freight means less business growth for shippers.
FIGURE 1. Freight volume graphic courtesy of FreightWaves.com
Signs of a breakout in the market finally emerged in late July when the freight volume index crossed over from being below last year’s stats to above them. For the first time in 2019, after nine weeks of growth, outbound tender volumes were positive. The data was a clear indicator that the freight “recession” (declared in May) had taken an upward turn. It has stayed that way, on a year over year comparison, ever since. Finally! There appeared to be some stability in the market.
In August, the industry experienced a surge in volume (4.1% increase) which historically comes in September and October as peak season kicks in. One explanation for the unusually early activity could stem from ports clearing out excess inventory and overstocked products from pre-tariff alarmists. Even though volume increased, outbound tender rejection indexes remained low – far below last year’s numbers which never went lower than double digits. Low tender rejections reflect over-capacity, which was most likely caused by a reaction to last year’s record-high volumes that spurred on a record-breaking number of new truck sales.
FIGURE 2. National spot rates data courtesy of DAT Trendlines
Retail markets drive most of the nation’s freight volume in the last quarter of every year. This September, consumer spending was strong, as reported by Walmart and other retail markets, creating a rise in freight volume. Other factors, such as this year’s bumper crops of apples and the harvesting of potatoes, were responsible for boosting freight volume. Manufacturing of non-durable goods (shelf life of fewer than three years, such as foods, beverages, and raw materials) also rose by 0.5 percent. Tender rejections also began to climb in the Midwest and Northeast. The month closed with national freight volumes at 3 – 5 percent higher than last year at the same time.
Some analysts predict that a continuation of this trend will help mark the end of the freight recession for 2018, but caution that we need to keep a close eye on consumer spending and employment towards year-end.
FIGURE 3. Market Demand Index by week from Truckstop.com
Truckload & LTL market … TL rates should be flat or slightly increased moving into 2020, again, probably from over-capacity. Used truck sales declined for the first time in twenty months, according to Transport Topics, another indicator that trucks have over-saturated the market for current freight demand. In LTL, however, rates are shifting around 3-6 percent according to Tranzact. Mike Barry, director of logistics at Choptank, said, “The increase in LTL rates could be a reflection of one of the largest LTL carriers, New England Motor Freight, going out of business earlier this year, and we are now seeing part of the fallout.”
Spot Rates versus Contract Rates - Rates in June saw temporary, seasonal highs with the onset of produce, but spot rates have since come back down. Freight market analysts say it is unlikely we will see any spike in rates in the spot market through the end of the year.
Shippers are getting ready at the negotiating table for this year’s rounds of contract rate pricing. Last year required many shippers/brokers to reconvene at the negotiating tables due to the soft market. Spot rates are still on the low side due to some areas still experiencing excess capacity, but that will most likely change as the season progresses.
FIGURE 4. Capacity snapshot of van load-to-truck ration courtesy of DAT Trendlines
Rail – Intermodal rail freight has trended downward with annual year-to-date container and trailer volume down in July by 2.4 percent, marketing its fifth consecutive month of decline. In September, rail volume dropped 3.8 percent from this time last year. Rail traffic is expected to remain down for the rest of the year, even with peak season. On a positive note, train speeds are up!
Port – According to American Shipper, the ten largest ports in the U.S. reported a growth rate of 2.1 percent for the first half of the year. The Port of Baltimore set another record for cargo, handling 98,529 containers in July. IANA reports that September numbers are forecasted slightly down from last year 0.7 percent nationwide. Additional tariffs are scheduled for December 15, 2019.
THE FUTURE OF THE FREIGHT MARKET: The industry is predicting a future where margins will decline as volume increases because of improvements in freight technology, digitization, efficiencies, and greater competition. Working with a 3PL that stays current with emerging technologies and trained staff, like Choptank Transport, will be necessary for companies that want to improve their supply chain.
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