Don’t sleep on the truckload spot market

Some mainstream economic growth signals like GDP, housing prices, lower inventory levels, and employment have been trending on the positive side lately. But there are others, too, which have not received as much attention.

One of those, which has not seen nearly as much public acclaim is truckload spot market activity, according to data from the North American Freight Index, issued by Portland, Oregon-based freight marketplace platform and information provider DAT, a subsidiary of Roper Industries. DAT defines the North American Freight Index as a measure of conditions on the spot truckload freight market.

What the most recent edition of the North American Freight Index clearly spells out is that the truckload spot market is heading on a growth path, showing sequential gains from July through November for the first time in five years.

DAT observes that this is interesting on multiple levels, including how the Index typically peaks in June and then subsequently sees declines through the remainder of the calendar year, coupled with ramifications for 2017 shipper-carrier contract rates.

DAT Analyst Mark Montague was able to offer up some context behind the data and trends currently driving truckload spot market activity.

“We went through a period where 2014 was a record year for the spot market and rates climbed very steeply for both spot market and contract rates,” he explained. “And in 2015 there was still momentum in contract rates, but spot market rates started to lose some of their steam and spot rates started to slide into the first quarter of this year, hitting bottom in March and April. There was then a recovery of rates after, as well as a recovery of volumes and the indicators in the load-to-truck ratio turned positive.”

While things are getting better in the market, Montague made it clear that the growth is not accelerating at such a quick clip that every stakeholder is unanimously on board with the improvement. And he explained that while there may be a “little bit less” capacity out there, there is still “sufficient” capacity in most situations and regions of the U.S.

What’s more, there are a few market influences, or correlations, for the uptick in activity such as the fallout from the Hanjin Shipping bankruptcy, heightened e-commerce activity, and the drought in California impacting produce shipments.

And DAT Vice President Marketing & Corporate Communications Eileen Hart said that weather events, like Hurricane Matthew, cannot be overstated in terms of what they can do to freight flows and rates.

When events like the hurricane and Hanjin occur, she noted that it led to shippers repositioning inventory and realizing, especially in the case of Hanjin, that when inventory came into the West Coast it was taken out and moved East because they knew it would be easiest to restock in the West once containers hit ports there.

“Not a single one of these things is enough to make a sharp increase, but it does when they are added all together,” Hart commented.

As for where this all leaves things now, Montague took a recent look at market activity, pointing out how November usually starts strong and then fades in the second half of the month, but this year in November it was different, with the third week of the month strong, with activity up 8 percent for the top 100 significant trade lanes.

“This presents a strong baseline of where the market is headed,” he said. “The last three years compared to the prior four years that we have measured freight rates ended being up in December over where they were in November, so in the e commerce-gift card redemption world we live in rates are going to have pressure to rise in November and into January due to things like gift cards redemption and inventory on the shelves.”

One topic I was keen on addressing with DAT was the proliferation of freight brokers. I was curious to learn if the increasing presence of large-scale brokers (created by M&A activity) has the ability to soften rates or make things more dynamic on the pricing front, aside from demand patterns.

Montague explained that many of the brokers that are out there are getting larger and more sophisticated, with improvements in tracking that are making it easier for shippers to give a substantial portion of their business to a 3PL i.e. brokerage and make them prominent for backhaul and head haul lanes.

“A lot of the brokers are working with regular partners now, and the fact that they have all this transparency to what the small truck lines are doing has helped the growth of the spot marketplace. I think the spot marketplace took a step back after 2014 because of the sour experience of shippers, with much of that due to the weather and people not being able to perform pick up and getting over the road.  Now there has been more freight flowing back into the spot marketplace as evidenced by 20 percent van growth in April for the top 100 lanes followed by a 60 percent gain in May,” he said. “Now we are in eCommerce season with even more freight entering the spot marketplace.  Volumes last week [Nov. 28-Dec. 4th] were shockingly strong, up 62% week-week, as shown in both our load board and rates databases.”

This is also a byproduct of the spot market needing to recover and the contract market gaining some strength under it and not dropping anymore, he added.

This is not specific to DAT data only, too, with Montague saying annual figures from DAT and others are all supporting that narrative. And another part is number of power units, with some bankruptcies and trucks going out on the used marketplace and fewer tractors being purchased over all, with those numbers having been on the decline for several months and leading to a capacity imbalance.

With all the activity occurring in the spot market in the moment, DAT’s data and commentary shows now is clearly not the time to sleep on the truckload spot market, given the gains in activity it is currently seeing. And that goes in tandem with what type of impact the further economic growth and pending regulations (think Electronic Logging Devices) may have on spot market and contract market pricing and capacity availability.

There’s lots going on with this, so buckle up as it looks like 2017 could be an interesting ride.