Freight Demand, Spot Rates Signal Trucking Rebound

July 17, 2017 by Jerry Hirsch, @Jerryhirsch

Demand for freight services and the rates shippers are paying have improved to their highest levels in years, according to a key industry index.

The DAT North American Freight Index for June jumped 24 percent over the May level and now stands 57 percent higher year-over-year, according to DAT Solutions, which operates a truckload freight marketplace.

The bottom line is that freight brokers and shippers are having trouble finding trucks to carry loads and are paying a premium in most major markets and lanes, or trucking routes, according to the DAT report.

Two factors are contributing to the tight market – increased freight demand and a contraction in capacity, or the number of trucks available to haul goods, said Mark Montague, DAT’s industry pricing analyst.

A bumper crop of produce coming late out of California’s farming region has increased demand for trucks. Meanwhile a cool and wet spring in the Northeast delayed seasonal purchases such as fertilizer, grass seed, pool furniture, gas grilles and outdoor equipment.

Retailers are now catching up.

Truck availability could become more of an issue as the year progresses.

The trucking industry has December 18 deadline to comply with a federal mandate to install electronic logging devices, or ELDs, in heavy-duty trucks. The devices track the hours drivers operate the trucks to make sure they comply with federal laws that cap how much time they can drive. Some small percentage of independent drivers are expected to leave the industry rather than comply with the mandate.

“We think the closer we draw to the ELD mandate start, the more impact it will have on capacity,” Montague said.

Rates are rising fastest in the van, or conventional trailer, business. The spot rate for vans rose 6.5 percent to $1.80 per mile in June from May. The rate for refrigerated trailers, or reefers, climbed 5 percent to $2.12 per mile in June. The flatbed rate rose 2.9 percent to $2.16 per mile.

North American Freight Index

(Source: DAT Solutions)

The numbers are actually a little better than they look. Spot truckload rates incorporate a fuel surcharge, which is tied to the average price of on-highway diesel. That price has fallen 7 cents per gallon since the start of 2017, giving truckers a touch more profit margin in the rates.

The strong spot rates are a positive economic signal for the trucking industry, said John Larkin, an analyst at Stifel Financial Corp. It shows demand is building and the prospect for increases in contract rates – what shippers arrange in advance with the major trucking firms – are improving.

“Normally, the spot market tightens about six months prior to the tightening of the contract market,” Larkin said.

While contract rates started to firm last year following an industry slump, they still have yet to move up meaningfully.

“At least the downward pressure on contract rates has subsided,” Larkin said.

Contract rates for flatbed services, which includes the transport of autos, construction materials and machinery, are already moving higher, a positive indicator for broader upward movement in early 2018, Larkin said.

He believes truckers will see increased shipping demand in the second half of this year compared with the same period last year.

On Monday, ACT Research issued its For-Hire Trucking Index for June and it represented another positive industry indicator. June’s reading advanced for the sixth consecutive month to 72.0, soaring to the highest level since March 2014. It now stands almost 20 points above the reading in the same month last year, the research firm said.

DAT said van freight demand jumped 35 percent in June compared with the May level and is up 68 percent over June of last year. Refrigerated freight made similar gains, up 23 percent compared with May and 66 percent over the same month a year earlier.

Flatbed freight demand rose by a more modest 14 percent from May to June. But it also was up 66 percent compared with June 2016.

The industry is expected to retreat a bit in July, when freight activity typically tapers until the end-of-year holiday season. But through the first week of July, both demand and rates were still strong, Montague said.

Larkin said July also could get a jump from’s Prime Day promotion. Sales for the event last week grew by more than 60 percent compared with the same 30 hours last year, according to Amazon. The company said the event’s sales surpassed Black Friday and Cyber Monday of the holiday season.

Nonetheless July and August freight demand could be particularly soft due to extended auto plant shutdowns – mostly related to surplus light vehicle inventories that have been building as auto sales slowed this year, Larkin said.

But any lull in freight demand isn’t expected to last, Montague said.

“We are confident that spot market trends will remain strong through the second half of 2017, and contract rates seem likely to follow,” he said. “January 2018 will be the first full month following implementation of the ELD mandate, so we may see an off-season spike in spot market rates at that time. In recent years, spot market volume and rates have begun to rise in March, and that pattern is likely to repeat in 2018.”

Read Next: As Economy Pushes Trucking Rates Higher, ELD Mandate Could Roil Industry

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