DAT offers up insight into the current state of the truckload spot market

The last year or so have seen us living in very interesting times, to be sure, especially as it relates to freight transportation and logistics. That has been very clear in spot market rate activity, which jumped to record levels over the course of the course of the second half of 2020, as the economy began to recover from the impact of the COVID-19 pandemic.

Looking at spot market activity in 2021, things are somewhat more tempered than compared to the frenetic rate of activity seen as 2021 came to an end, but there have been exceptions, too, like the recent spate of harsh winter weather that impacted freight networks nationwide.

That was evident in numbers recently issued by Portland, Ore.-based DAT Freight & analytics, an online marketplace for spot market truckload freight. DAT noted that the week of February 21 was the busiest week ever for load postings on the DAT network, with the total number of available loads exceeding 10 million and was 42% higher than the previous record set in June 2018 and 174% higher compared to the same period last year.

A DAT spokesman told LM that, for perspective, the DAT network had 226 million loads posted last year, meaning that the activity from the week of February 21 represented almost 5% of last year’s traffic in one seven-day period. And he added that while spot market volumes have tapered off since then but rates still remain high.

Logistics Management (LM) Group News Editor Jeff Berman recently spoke with DAT Chief of Analytics Ken Adamo about the current state of the truckload spot market and what may be in store looking forward. Their conversation follows below.

LM: The data from the week of February 21 was significant. Did it have to do with more than weather-related events?

Adamo: The harsh winter weather south of the Mason-Dixon line was a definite factor. We entered the year coming off of very a strong retail shopping season, with rates coming down faster than we had seen for that period, to start the new year, over the last four or five years.

I truly think that absent any weather event we had that rates would have continued to fall a bit and then level off, in line with where rates were in between 2018-2019. That is my most likely guess.

What we essentially saw was a very fragile freight system across really all domestic modes, it disrupted a giant freight triangle from Seattle to southern Texas to New England. And that drove end-to-end disruption from the ports, with unloading and drayage, moving to rail, then over-the-road. Less-than-truckload (LTL) struggled to pick up the slack and we saw terminal closures. We also saw huge swaths of the country with traffic limitations that were impeding truckers’ hours…and not only terminals but also customers shipping and receiving locations being impacted.

So, it created this massive backlog of freight, which is just now sort or resolving itself. We saw load and truck posts head down basically because they had to…the main theme of this week is catch up, with everyone taking a breath before shipping really start to pick up in the next few weeks with the spring retail and produce seasons.

LM: How do you view the current impact of rising fuel prices, as it relates to spot market activity?

Adamo: It goes back to fuel surcharges. Depending on fuel surcharges, I think they are anywhere from 6-to-10 cents, if you have a really lucrative fuel surcharge from a shipper or a broker. The weighted average is probably on the lower side, closer to about 7 cents. Fuel obviously pinches carrier margins, because the fuel surcharge, by design, is never really going to catch up entirely as fuel surcharges go….there is a lag.

Oddly, fuel surcharges going up usually has a slight deflationary pressure on total linehaul rates because that is [largely] passed along. If you already getting inflationary from fuel being passed along from your broker or shipper, it is usually harder to double-dip on linehaul so the market tends to respond in a bit of a more muted way. There is also an inverse effect, in which it is slightly deflationary and provides some pushback against rates going up.

In the opposite direction, when rates collapsed in 2019 and late 2016 and early 2017, decreases in fuel actually gave rates low positive pressure because they were showing savings to shippers in the forms of fuel and did not have to give as much back in linehaul right away. Fuel did have a little bit of an inverse pushback of what you would typically expect. You are only getting 6.5 miles per gallon from the shipper or broker either way and you might as well minimize your variance, depending on your fuel surcharge levels.

LM: How do you view intermodal activity and the current import backlogs on the spot market?

Adamo: The issue around intermodal capacity was a major catalyst, especially West to East, of what we have experienced over the last three weeks.

When Union Pacific kind of hunkered down, that freight needed to move, and it was already behind on inventories and on getting things moved through the supply chain and it pushed more and more freight to over the road. We saw the terminal issues around LTL and some of the more network-based truckload companies, and it even exacerbated the situation and pushed more freight into the spot market as opposed to drayage capacity.

We are also seeing rail surcharges in March, that is pretty rare. There is a major focus on over the road truckload, with some of the major forces being density in miles and maximizing revenue. Intermodal is more yield management-focused with things being a little bit more constrained, as the networks grow alter and lot more slowly and they can only go where the rails take them. They are more concerned with maximizing yield and saving space for their larger customers.   

LM: What happens now with people buying more “stuff” over the last year, as it relates to what happens to freight when services activity picks up as people are buying less goods and doing more “things” like going on vacations and to sporting events, among other services-based activities?

Adamo: That is what a lot of us in this industry and tangent industries are assuming. The problem is, though, even in the last six weeks we seem to have created quite a bit of backlog…and it still has not been easy to get consumer durables like furniture and washing machines and refrigerators. I don’t think it is going to evaporate overnight. I still think there will be demand for those types of things on the heels of this round of stimulus. Reticence to traveling could play a big part…will have to see how what happens with that. There are also some hidden inflationary measures. The CPI (consumer price index) maybe is not as indicative as it once was, relative to actual inflation. A $6 2’x4’ or fence pickets that are four times what they were last year or mulch or any of these things are becoming very expensive. There is an interesting kind of alternative definition of inflation, where it is less about the price of things going up and it is once you have accepted that they have gone up as a new norm. There are a lot of downstream impacts of that. But, also, you cannot ship a vacation. I do think we are seeing some alterations within reefer capacity, as it does shift back to commercial food service, with more economical packaging and fewer trucks required per economic unit than you will start to see soda or beer with more kegs moving around than six packs as an example.

LM: How do you assess the first quarter of this year, as we are almost halfway through March?

Adamo: It is going to rival the first quarter of 2020 at this point. The pricing decisions that are being made today need to heavily contemplate the third and fourth quarters of this year and the first half of next year. There was a lot of contract rate activity in the second half, specifically the fourth quarter of last year that spilled into January and early February of this year. That was a wave and between every wave there is this quiet time. And I think when you start to see that pickup of RFP activity in the spring, the best advice I can give is to not let that recency bias affect too much of what you are feeling. We will get through this and will get past this and, ultimately, we are going to have a second half of this year to be concerned with and all of 2022 to start thinking about.

LM: With the COVID-19 pandemic approaching one year in the U.S. this week, how would you view the coming annual comparisons?

Adamo: As a universal piece of advice for a shipper, carrier, Wall Street analyst, or journalist, starting this week, the comparisons mean less, due to the timing of when the pandemic started in earnest in the U.S. That argument holds over the next four months or so because of the volatility, but, at the back end of last year, we had a historical rate rally. Even if we are losing 10-15% of that rate rally, it is still a tremendous second half of the year for rates. While one may be surprised by very strong annual comparisons over the next few months, you are probably going to see very weak ones over the second half of the year even though rates are still generally holding strong.