DAT’s Montague offers up deep dive on state of spot market

There are so many ways to analyze the state of truckload capacity, and on top of that there is, perhaps, no other facet of freight transportation that is so directly impacted by myriad moving parts, whether it be driver availability, rates, demand, weather, the economy, and, of course, federal regulations, among others.

That was a key takeaway of comments made by Mark Montague, an analyst at Portland, Oregon-based freight marketplace platform and information provider DAT, a subsidiary of Roper Industries, at last month’s Council of Supply Chain Management Professionals Annual Conference in San Diego.

Montague provided a deep dive of how these factors are related to spot market prices and trends, beginning with the “Polar Vortex” during the winter of 2013-14.

The severe weather conditions that it brought created tightness in truckload markets in roughly two-thirds of the United States, resulting in what Montague said was “one of the most severe events of truck tightness we have ever seen.”

And even in parts of the U.S. that were not impacted by the terrible weather, like California and Texas, there were changes occurring in demand shifts, which DAT measures by dividing load posts by available truck posts based on its data. The company does this for 135 defined U.S. and Canadian markets.

Taking a look at spot market pricing trends, Montague explained that rate trends have a direct impact on spot market trends, and when capacity is used up; rates tend to respond in an upward manner.

“If you use the spot market and rates head up to a higher level, it starts to impact capacity in that local market to where carriers realize they can charge more rates on a longer term basis, as well as short-term spot rates and haul short-term spot market rates and start to leave contract shippers short of capacity,” he said in describing the dynamic between spot and contract rates. So for shippers in order to maintain service levels they need to respond when the next bid comes or even sooner and adjust rates so they can regain capacity.”

This, in turn leads to a desire on behalf of shippers to find core carriers and lock them long-term, coupled with providing great service to their customer base, he said.

But that is easier said than done, too, due to what he called “disruptive events,” that highlight the need for both contract shippers to carefully monitor data on spot market rates and activity, and be able to anticipate events to provide preparation in advance of a crisis.

Montague said that at the moment spot market linehaul rates are dropping in conjunction with total rates also declining, as a byproduct of low fuel prices. But when fuel is isolated and only the linehaul rates are analyzed, he said that spot market rates are still down as there is a decent amount of available spot capacity at the moment.

And he offered up the following as advice and guidance for contract shippers: “If you are a contract shipper, it is a great idea to do a bid to further strengthen relations with your contract carriers, because there are a number of things on horizon, like regulatory challenges and the fact that fuel wont stay low forever. These low fuel prices are providing a windfall for small carriers that have a hard time with the fuel surcharge component, and they don’t do as good a job when fuel goes up as the larger carriers do at recovering all the fuel money they have to spend so they have a bit of a windfall and with the oil and gas sector down now that also means there is less competition that can pull drivers away from trucks. There has been a real recovery in capacity, especially over the last three months with spot market rates down.”

At the moment, current spot market spend is within 15 percent of historical norms, according to Montague. And with “disruption” currently absent, these rates are returning to a more normal level, while also carving out a new history in the form of an industrial-led recovery, while also being paced by inroads in the oil and gas sectors, as well as other ones, too.

When asked about the pricing outlook for 2016, Montague stressed it is still too early to come to a conclusion, due to a lack of visibility, which is clouded by ongoing legislative issues in the form of industry regulations, as well as what the winter may bring.

When it comes to the potential harsh impact of regulations on both the sector and pricing, he quipped that “hopefully sanity kicks in and things soften” while noting that is far from a sure thing.

“The best thing to do is to be prepared for all contingencies in 2016, which could be a good growth year or 3 percent or more or a year of flat growth,” he said. “The easiest way to prepare is to have current data handy for a jumping off point.”

As for when the best time for shippers to lock in contract rates, he said that the September-October timeframe is often not ideal, due to the coming holiday season and fall peak arriving, but this year it is actually a good time as carriers are resetting expectations on what 2015 was going to be.

“There is now an opportunity in some lanes…in that you need to balance out great service versus low rates, and that is an ongoing thing, because a shipper needs to be looking at rates more than just once a year,” he said. “It used to be that April was the best time, but some say that January and February is the best time, because that can be when carriers can be most hungry although it is often a low point for contract rates, with the exception of the winter of 2013-14. Last year, rates rose in November, though, with HOS taking out 5 percent or so of available capacity.”