While the holiday season is known to bring good tidings and cheer to all, it may also come with another thing that is not so pleasant: higher rate freights.
That was the thesis of a commentary written by Mark Montague, industry pricing analyst and chief market-watcher for DAT, a Portland, Ore.-based subsidiary of TransCore.
Montague observed that the transportation sector is “flourishing, at least in part because of rate increases,” noting that the Dow Jones Transportation Index has outperformed the retail sector and S&P 500 since March. And he added that there are other positive undercurrents when it comes to the higher rate environment, as well, including optimistic holiday retail sales forecasts from Deloitte, which is calling for 4.5 percent growth along the lines of $1 trillion in retail sales, and 4.1 percent gain from the National Retail Federation, which would represent the first time holiday retail sales have eclipsed 4 percent annual growth since 2011.
But not all the metrics are full of sugarplums either, with Montague pointing to the S&P 500 Retailing Index, which is off 0.9 percent through the first eight months of the year and included a weak back to school season and declining consumer confidence in September, as per data from the Conference Board.
As for how shippers feel about the holiday-related freight rates, Montague cited data from Wolfe Research (via joc.com) that showed that more than 50 percent of shippers expect to pay peak surcharges to move truckload freight in the fourth quarter, which is due in large part to tight capacity, as shippers are expected to also rely heavily on freight brokers to secure over the road capacity.
Even with the general consensus that freight rates will rise between now and the end of the year, Montague noted that freight volumes were not expected to see a commensurate increase.
But while volumes may not be ahead of the curve, backups and congestion at the Port of Los Angeles and Port of Long Beach remain an issue, with containers sitting idly for far longer than usual before heading to their final destinations via truck and intermodal.
That sentiment is also playing out on DAT’s load boards, according to Montague, with what he called a “significant number of van loads finding their way onto the spot market.” Earlier this month, for example, he said that activity on the boards showed more than 2,000 available van loads and 500-600 outbound trucks posted on a daily basis from the Los Angeles market, with spot market rates also up on lanes from Los Angeles to regional freight hubs in Stockton, Phoenix, Dallas, Denver, and Atlanta.
What’s more, DAT data shows that the current load-to-truck ratio is at 4.3. which Montague explained represents capacity pressure in October that looks like the June peak for vans outbound from Los Angeles.
With the confluence of job growth, consumer confidence inching up and lower gas prices, Montague said the stage is set for an “optimistic outlook for the U.S. economy in Q4 and into 2015…[with] GDP growth…estimated at 3.2 percent” for the third quarter and 3 percent growth expected in the fourth quarter, according to a Wall Street Journal survey.
These undercurrents, coupled with low fuel prices and an expected 2.6 percent increase on consumer spending, could portend more money being spent on gifts, and subsequently one that will see higher freight rates being paid by the retailers using carriers to get their freight to where it needs to go.