Spot Rates Show Signs of Stabilizing as Economy Slides Into Recession
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Research from companies that track trucking data suggests that while the spot rate market amid the COVID-19 crisis may be settling, the long-term effects of this steadying could be good for the industry.
“The rates seem to be stabilizing,” said Avery Vise, vice president at Bloomington, Ind.-based FTR Transportation Intelligence, in an interview with Transport Topics. “It’s a pretty fluid situation.
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His group and others are monitoring the spot rate market, which has been active as fleets worked hard to meet surging demand for consumer goods. While that activity seems to have cooled, Vise suggested this slowdown may help sustain the industry through the summer.
“One of the issues could be we are running out of material for which to restock shelves,” he said. “It doesn’t mean the restocking actually is over; it may just mean that it’s prolonged. From the carrier’s perspective, [this] may not be bad. It would keep a little bit of a floor on rates for a while longer.”
“We are observing a cresting pattern in supply/demand data, which is manifesting into stalling or declining spot rates for both dry van and reefer,” said Ken Adamo, chief of analytics for Beaverton, Ore.-based freight brokerage DAT Solutions. “This is a shift that DAT and other industry analysts have predicted, but it remains to be seen whether the pattern will turn to a sharp downward correction, a holding pattern or a return to the upward trend.”
DAT in a report dated March 31 said that while dry van rates had held steady at $1.73 per mile, rates for refrigerated freight had fallen from $2.04 to $2.01 per mile.
Vise noted that FTR is also seeing a decline in spot rates for flatbeds, a swift drop from activity just a month ago when robust residential construction had the segment performing near 2018’s record levels. Recently , the segment has fallen to well below its five-year average.
“It has been a very sharp drop-off,” Vise said.
Despite the declines, Adamo said it’s too soon to project how the summer and fall will look.
“Debate has abounded regarding the shape of rate and volume trends during the period that follows the restocking push: Will it be a V, a U, a straight line up/down or a plateau?” Adamo said. “We assert that there is simply not enough data to definitely tell how the market will behave beyond the next couple of weeks.”
There are clear signs, however, that the overall U.S. economy has ground to a halt in recent weeks. The Labor Department reported that U.S. companies cut 701,000 jobs in March, and the nation’s unemployment rate reached 4.4%. The jobs picture is expected to worsen as states process the millions of suddenly unemployed workers into their systems. The April jobs report will be released May 8, and it’s expected to include many of those people who filed for first-time unemployment benefits as the outbreak forced businesses to close and people to stay home. During the two-week stretch at the end of March and into April, the number of people who have filed for unemployment reached nearly 10 million.
Economists at UCLA’s Anderson School of Management have concluded the U.S. economy is already in a recession and will remain in one until at least October. The first-quarter Gross Domestic Product is projected to drop by 0.4%, in the second quarter by 6.5% and 1.9% in the third quarter.
The UCLA report said California will be hard hit by the recession, and the state will lose 288,000 jobs by the first quarter of 2021, pushing the state’s unemployment rate to 6.3%.
This is the first time in the 68-year-history of the forecast to conclude the economy is in a recession before its scheduled quarterly release.
Economists with the Bank of America are forecasting a second-quarter 12% drop in GDP, the most significant quarterly decline in postwar history.
At the Economic Forecasting Center at Atlanta’s Georgia State University, Director Rajeev Dhawan told Transport Topics he is stunned by the speed of the economic dislocation that’s taking place because of the pandemic.
“We are in a Category 5 hurricane. It is still playing out. It is getting more intense,” he said. “You can see that both in the infection rate, the death rate and the economic fallout. By no means is this event over.”
Dhawan also cautions that even when the U.S. flattens the coronavirus curve, and the number of deaths begins to decline, there will still be several months of hard times ahead.
“There is also a misconception that when we reach the peak of the infections, we have turned a corner. After you turn the corner of the peak, how quickly you come down and return to normal is the unknown over here,” Dhawan said. “We are in the second inning of a baseball game that could go extra innings. We just don’t know.”
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