Midwest, NE truck lanes buck falling US rates

Midwest, NE truck lanes buck falling US rates

Trucking rates have climbed in August out of Chicago and nearby Joliet (above), a silver lining in the 2019 freight downturn. Photo credit: Shutterstock.com.

Despite the talk of apocalyptic conditions in US trucking this year, there are markets where shipping activity is picking up in August.

In the Midwest and Northeast, cities such as Chicago-Joliet; Cleveland, Ohio; Columbus, Ohio; Elizabeth, New Jersey; and Indianapolis are seeing more activity on the DAT Solutions load board compared with last month. Rates in these markets have also climbed this month, according to DAT and a preliminary JOC.com analysis of 115 lanes. 

Some of this may not be new volume as much as a shift in loads from contract to spot markets as shippers look to take advantage of how low rates have fallen. It’s a silver lining, however, in what is otherwise a difficult trucking market as evidenced by falling volume compared with robust conditions in 2018.

The Cass Freight Truckload Linehaul Index, a measure of US truckload pricing, was flat year over year in July and report author Donald Broughton predicts it will turn negative in August for the first time since March 2017. The Cass Freight Shipments Index was down 5.9 percent in July. The monthly index has been negative year over year since December 2018.

The Cass Freight Expenditures Index, a proxy of what shippers are paying rather than volume, was down 1.4 percent year over year in July. Spending growth was negative in two out of the last three months and up less than 1 percent year over year in June. Contract rates are now lower than a year ago and spot rates are down 20 percent versus 2018, according to DAT and a JOC.com analysis.

But as with any index, there are elements — in this case, specific geographic lanes — that are outperforming the average.

Dry van spot rates from Buffalo to Chicago, for example, rose 16 cents to $1.67 per mile week over week during the week ended Aug. 11, and the return haul increased 21 cents to $2.64 per mile, according to DAT. Rates from Chicago to Atlanta were up 13 cents to $2.01 per mile and Cleveland to Chicago gained 10 cents to reach $1.91 per mile.

Out of 20 Chicago outbound lanes tracked by JOC.com, 15 have higher rates this month compared with July. Pricing for 12 out of 15 lanes out of Elizabeth are up, as well.

“Contrary to the doom-and-gloom recession talk, the Midwest and Northeast just picked up significantly for freight shipping,” said Mark Montague, DAT’s manager of industry pricing.

“It's not all gloom and doom,” DAT Market Analyst Peggy Dorf told JOC.com. “We are in a typical seasonal transition, against the background of a loose-capacity environment. A lot of this pricing trend is cyclical, and therefore temporary. We've seen this movie before.”

The “back-to-school” effect

Montague believes there are a couple reasons why shippers are picking up the pace in these markets. 

“I suspect it is mostly increased demand that hits every year around mid-August due to the change in seasons. We sometimes call it ‘back to school’, but it's a lot more than just school supplies. It's fall clothing and increased purchasing of goods for home consumption,” he said.

Consumer spending rose 0.7 percent in July, according to the Commerce Department’s monthly numbers, beating analyst estimates of 0.3 to 0.4 percent growth.

Shipments of produce can also spill over into dry van capacity. Trucks with reefer units can haul standard freight or items that need refrigeration. With late summer harvests, drivers in agricultural areas flip the switch to haul blueberries, raspberries, peaches, plums, and apples. Trucks are in high demand in rural areas of Wisconsin, Ohio, Michigan, and the Northeast. 

Rates out of Grand Rapids, Michigan, for example, have spiked in the last seven days. Reefers can now fetch $3.71 per mile between Grand Rapids and Cleveland, compared with $3.09 the prior week, while rates from Grand Rapids to Atlanta have climbed to $2.59 per mile from $2.28 per mile, according to DAT.

Drivers chasing this lucrative freight tightens capacity in the cities and lanes they left behind, but only temporarily. Once the produce season ends, rates smooth out and drivers and capacity return to their usual lanes.

Still, faced with uncertainty about the economy and geopolitical trade tensions, US shippers are transporting fewer goods than a year ago. Trucking operators are doing all they can to combat the loss of volume — including cold calling shippers to locate freight — but ultimately, there's little they can do other than wait.

Contact Ari Ashe at ari.ashe@ihsmarkit.com and follow him on Twitter: @arijashe.