Industrial demand drives up US spot truckload rates

Industrial demand drives up US spot truckload rates

Truckload companies have been eagerly awaiting signs that faster economic growth is leading to higher rates.

Those looking for a trigger for higher US truck rates may find one in the spot market.

US spot truckload rates shot up in early March, after weeks trailing higher freight volumes. Dry van spot rates rose in 56 of the 100 top truckload lanes, DAT Solutions said, led by outbound rates from Memphis, Tennessee, and Atlanta, both major distribution hubs for e-commerce.

Rates went up as the number of available trucks on load boards operated by DAT decreased 4 percent overall in the week that ended March 4. It’s possible that motor carriers pulled trucks from the spot market to serve contractual customers now generating more freight.

Spot market volumes were up 17 percent from the previous week and 87 percent year-over-year. The US average dry van rate rose 4 cents, or 2.5 percent, to $1.66 per mile, including fuel surcharges. Excluding surcharges, the average van rate rose 2.9 percent.

DAT reported big increases in the number of available van loads in Chicago and Los Angeles, major hubs for retail imports. That could mean the surge in imports delivered to US ports in January is shifting from warehouses to highways on its way to distribution centers and stores.

However, DAT believes industrial freight is the big driver behind the growth in spot market freight volumes. “So far the activity that’s really sharp this year is industrial,” said Mark Montague, industry pricing analyst for DAT. “It’s a lot of material that goes on flatbeds with tarps.”

Flatbed spot market rates were up 3.1 percent from the previous week and 7.1 percent from a year ago, according to DAT. Flatbed load posts on DAT boards jumped 13 percent, although the number of available tractor-trailers dropped 5 percent, tightening flatbed spot capacity.

Flatbed load-to-truck ratios were high, above 18 loads for every truck, in most parts of the United States with the exception of California and the Southwest. The national average load-to-flatbed truck ratio rose for the fifth straight week, hitting 34.6, DAT said.

“The heavy band of demand really starts in Texas and goes east all the way to the Carolinas and then up the East Coast,” Montague said. He noted high demand for plastics, natural gas, and oil activity that is generating more demand for heavy industrial flatbed-type freight.

“The freight recession of 2015 and 2016 was really caused by the slump in industrial freight, and now that freight is back,” Montague said. The Purchasing Managers Index (PMI) from the Institute for Supply Management (ISM), a measure of industrial output, rose to 57.7 in February, from 56 in January.

Any ISM PMI reading above 50 indicates growth, and the latest reading shows manufacturing activity increasing for six straight months, after declining in August. Overall, the latest PMI reading is significantly higher than the 52.8 average reading for the past 12 months.

“The question is, as we get into the better weather, how much has consumer confidence been restored?” Montague said. The answer, according to the Conference Board, is greatly. The board’s Consumer Confidence Index hit its highest point in 15 years in February.

US spot market truckload rates rose much of last year before stalling in February, a decline that likely put plans to raise truckload rates more substantially on hold. Swift Transportation, the largest US truckload carrier, said Wednesday contract rates remained depressed year-over-year, though less so than in 2016.

“Excess carrier capacity continues to persist within the truckload industry, prolonging the competitive pricing environment that existed throughout 2016,” Richard Stocking, president and CEO of Swift Transportation, told Wall Street analysts during a mid-quarter conference call.

“We do, however, expect volume to strengthen in March as historically March is proven to be the strongest month of the first quarter,” Stocking said, as warmer weather and spring sales arrive. If the spot market trends hold up, March’s historic strength may be proven yet again.

Contact William B. Cassidy at bill.cassidy@ihsmarkit.com and follow him on Twitter: @wbcassidy_joc.