Truckload Pricing Ticks Up After Pressure in First Half
This story appears in the Aug. 29 print edition of Transport Topics.
Recent reports that track freight rates could be showing initial signs of improvement in truckload pricing, which has been under intensified pressure this year.
The Cass truckload linehaul index, including spot and contract rates, moved up 1.1% sequentially in July from June, after declines in six of the past eight months. Also, the Chainalytics Cowen monthly freight index showed a sharp reversal from earlier performance as spot market rates, which have been a leading indicator of future rate levels, climbed above contract prices in June.
“The increase in dry van spot rates to levels above contract pricing hasn’t happened on a sustainable basis since December ’15/January ’16,” said a report from Jason Seidl, a Cowen & Co. analyst who publishes a monthly report in conjunction with Chainalytics.
“Truckers are finally starting to see some spot rate increases after a very difficult bid season,” Seidl said. “The data suggests spot pricing was 1% to 1.6% above contract rates in June. That’s consistent with the commentary from public and private companies for some time now.”
An Aug. 17 report from Stephens Inc. analyst Brad Delco illustrated the intensity of rate pressure truckload carriers have faced this year. He wrote that the second quarter marked the first time since early 2010 that freight rates were lower than the comparable prior-year period.
Donald Broughton, an Avondale Partners analyst who consults with Cass on freight reports, said the 1.1% sequential truckload improvement occurred “because spot rates have come back up a bit. It’s nothing more than that.”
While acknowledging that spot rate market weakness was a leading indicator of weakness in truckload pricing growth that began in January 2015, he cautioned that July’s sequential improvement “will have to be sustained” before there is an indication that truckload rates will get stronger.
“Given that June is the strongest freight month and there were still more trucks than loads, it looks unlikely, at least for now, that rates will improve,” he told Transport Topics on Aug. 24.
Broughton expects freight rates will range between a 3% decline and a 1% increase for the balance of this year as capacity is made more plentiful by larger fleets, an adequate supply of better-paid drivers and newer and more reliable trucks.
Delco wrote in his report, “We expect rates to remain flat to down for the remainder of the year on average. Contract [rate] renewals have decelerated from the highs seen at the end of 2014 into 2015.”
He added, “Expect rate decreases to continue for the remainder of 2016 as a result of tougher comparisons [4.3% average increases in 2015], combined with more aggressive behavior from shipper this bid season that pressured contractual rates.”
Still another report, this one from Keybanc Capital Markets on Aug. 23, suggested that the stronger spot market rates that were recorded in June and July have backed off to follow a more seasonal pattern.
In addition to finding that spot rates have fallen back below contract prices in early August, the Keybanc report from analyst Todd Fowler said that the spot rate pattern in the summer of 2016 is consistent with a five-year average.
The return to seasonality could indicate stronger rates going forward, Fowler said, though the industrywide excess capacity and elevated inventories could limit any improvement in the rate picture later this year.
All of the reports are based on the truckload market and were published in recent days. However, each report is based on different time periods and sources.
Cass offers monthly comparisons that are both year-over-year and sequential, using a mix of contract and spot prices. Chainalytics, teaming with Cowen, does monthly comparisons of spot and contract rates aggregated from Chainalytics’ database.
Keybanc Capital Markets tracks weekly and monthly trends, including spot and contract rates, using data from Internet Truckstop and other sources. Stephens Inc.’s rate reports are based on publicly traded carrier statistics as well as its research.
Seidl said Aug. 10 that the improved spot rates could have been tied in part to a drop in truck supply because drivers parked their rigs during the June 7-9 Roadcheck inspection blitz. In addition, he believes spot market strength has continued.
Seidl’s report also said that the latest spot and contract rate activity could increase pressure on brokers’ margins because those companies benefit the most when there are large gaps between freight demand and supply of freight capacity.
