Spot market remains high and capacity outlook remains tight, reports DAT

A confluence of market condition factors contributed to the DAT North American Freight Index hitting record levels in September, according to DAT Solutions, a subsidiary of Roper Industries.

DAT defines the North American Freight Index as a measure of conditions on the spot truckload freight market.

In September, the North American Freight Index was up 9% over August, and spot market freight availability saw a 74% annual increase.

DAT officials explained that demand for truckload capacity, already at a premium due to economic growth and seasonal freight activity, experienced the largest year-over-year increase since 2010, when the economy was emerging from a recession. And it added that Hurricanes Harvey and Irma also contributed to demand, as the storms disrupted supply chains and boosted spot truckload rates to levels not seen since December 2014, when extreme winter weather closed highways and caused fuel prices to spike.

For rates and demand in September, DAT reported the following:

• van freight activity increased 15 percent compared to August and 80 percent year over year;
• the national average spot van rate was $1.97 per mile, 19 cents higher than in August and 35 cents higher than in September 2016;
• there were 6.6 available van loads per available truck in September, the highest monthly average in at least eight years;
• demand for refrigerated (“reefer”) capacity was bolstered by robust harvests in the Upper Midwest and Pacific Northwest, plus late harvests in California;
• reefer freight activity increased 4 percent compared to August and was 70 percent higher year over year, which led to higher rates;
• at $2.23 per mile, the national average spot reefer freight rate was 15 cents higher compared to August and 32 cents higher year over year;
• flatbed freight activity increased 3 percent compared to August, as recovery and rebuilding efforts picked up in the Southeast and South Central regions, as flatbed freight activity typically declines in September; and
• the national average spot flatbed rate was up 8 cents to $2.26 per mile

And for the week ending October 7, DAT said the national average van rate was $2.07, which is its highest level since December 2014, with reefer and flatbed rates also at multi-year highs.

DAT said that relief and rebuilding efforts in in areas affected by Hurricanes Irma and Harvey, coupled with strong harvests in Northern states and California have impacted capacity availability, with load-to-truck ratios still high for van, flatbed, and reefer trailers.  

“Based on patterns from the last three years, we expect higher demand for truckload capacity to continue at least through December, with the movement of holiday-related e-commerce freight and the onset of the federal electronic logging device mandate,” said Mark Montague, DAT industry analyst, in a statement. “Demand may recede in February, which is normally a slack period, but we expect rates to remain somewhat higher than in previous years.”

“And that is why we are seeing this in the spot market, because most spot movements are truckload-based with Amazon and others consolidating in their own warehouses and then moving stuff among warehouse with spot market trucks," she said.

In a recent interview, DAT industry pricing analyst Mark Montague explained that the last truly strong year for trucking was 2014, but at the end of 2014 oil prices collapsed with so much fracking activity, coupled with world oil supplies coming on with Iran and Libya back in play, that it became unprofitable to keep that oil activity going. He also noted that the investment in drilling equipment and pipeline dropped as demand fell off, and then the spot market began a long slide through 2015 that did not let up until 2016.

“[But] contract rates continued to have some momentum in 2015 and by 2016 they were flat to negative and that has continued to be the narrative heading into 2017,” he said.

As to what is driving spot and contract rate increases, Montague said that it is likely a combination of more midsized fleets and a few smaller fleets having converted to the pending December 18 ELD (electronic logging devices) mandate, as per the Federal Motor Carrier Safety Administration, along with a decent economic momentum.

These factors, he said, are likely to lead to around a 3% gain on the contract side. But that came with a caveat that there would be less confidence in the 3% estimate if the ELD mandate was not coming.

“Right now, it is a demand driven story, and as the DAT North American Freight shows there is a lot more demand out there for all three types of services,” said Montague. “The backdrop is that there is really a small story of some capacity being lost due to ELD conversion, which is happening slowly, and there is also a big push by all of the little guys in that they need to do something or exit the industry. Whatever choice they make is going to hurt the supply side capacity right at the height of e-commerce shopping season in December.”

Expanding on the timing of the ELD mandate, he said that FedEx and UPS should be petitioning FMCSA to move the December implementation date back to early 2018, stating that the first quarter would be the ideal time to do it, rather than December, which is widely viewed as one of the most hectic months of the year.

As for the intersection of e-commerce and the spot market, ELD aside, Montague circled back to July, observing how rates headed up to start the month and were spurred on by Amazon Prime Day, too, with the result being that a good amount of freight was moving on lanes associated with retail movement, not industrial movement. This was evident, he said, in the densely populated Northeast, with a fair amount of truckload freight splintering into places doing last-mile delivery. 

“It is interesting that the spot market and e-commerce are very linked,” he said. “Looking at the regular retail cycle that would start to build in June into the peak months of Sept and Oct would be more of a contract play. But all of a sudden you have last minute spikes on a supply basis rather than a demand basis and the spot market is definitely capped for that capacity.”

DAT’s Dorf added that last year there was a lot of truckload movement that can be traced back to between Thanksgiving and Christmas, with Amazon and other e-tailers moving truckload movements among distribution centers and ultimately closer to consumers via truckload and then to last mile or a distribution center.