US surface indices falling, but positive signs emerge

US surface indices falling, but positive signs emerge

Although new Cass indices highlight weakness that remains in the trucking and intermodal markets, there are other signs conditions could improve sooner rather than later. Photo credit: Shutterstock.com.

Key monthly indices of truckload and intermodal pricing are falling, signaling that although the truckload spot market may have hit bottom, contract rates in trucking and intermodal rail could continue to deteriorate in the short term.

Hope is certainly around the corner for the truckload industry. The robust spot market of 2018 significantly cooled 12 months ago, making year-over-year comparisons through the end of 2019 less difficult. Contract markets, however, in both the trucking and intermodal industries are bound to see downward pressure for a while longer, according to Cass Information Systems monthly indexes and other industry data.

The Cass Truckload Index, a measure of contract and spot linehaul trucking rates, was down 2.6 percent to 134.8 in August, the first year-over-year decline since March 2017. The Cass Intermodal Pricing Index rose 1.2 percent to 143.3, but Donald Broughton, principal and managing partner at Broughton Capital and the author of the Cass index reports, believes the intermodal index also will turn negative year over year by October.

Other measures of the market show a shifting marketplace. Shipper rates, used to calculate the JOC’s Domestic Intermodal Savings Index, show truckload spot prices dropped 15.7 percent and contract rates fell 10.3 percent in August year over year. The Cowen-Chainalytics Freight Indices released Sept. 9 shows truckload contract rates were down 4.9 percent and spot rates were 14 percent lower than a year ago. Although double-digit declines in spot rates seem negative, the Coyote Curve — the upswing section of a U-shaped curve — is beginning to emerge. Coyote Logistics considers this an encouraging sign going into 2020.

Contract rates, however, are deteriorating rapidly, and Coyote Logistics expects shippers with early 2020 bids to secure rates on par with — or perhaps even below — 2019 levels.

Trucking in a transition

The U-shape emerging in the charts is one of a few signals that shippers might be unable to capitalize upon bargain basement rates for too much longer. 

August had the largest number of spot loads of any month this year, according to DAT Solutions, although supply chain activity often kicks up before Labor Day with back-to-school and Halloween inventory. Dry van spot loads, nevertheless, grew 7.9 percent versus August 2018.

“The economy has certainly been a hot topic as of late,” said Peggy Dorf, DAT market analyst. “But the strong positive trends at the end of August gave us a lot to be optimistic about as we head into the fall shipping season.”

Dry van spot rates nationally were up 2 percent in the last week of August on a week-over-week basis and have risen between 3 and 4 percent to begin September, according to a JOC.com analysis conducted in partnership with digital freight broker Loadsmart. The Loadsmart data doesn’t include actual transactions, but rather quotes of what shippers would pay with a multi-day lead time.

“While the uptick in certain trucking data points has been encouraging, it has been off a low base and we’ve cautioned against too much enthusiasm until there were signs of sustained strength,” noted Ravi Shanker, industry analyst with Morgan Stanley.

Hurricane Dorian is responsible for much of the rate movement in the last week, according to Loadsmart and DAT data, with the largest rate increases occurring in lanes into Jacksonville, Lakeland, Miami, and Tallahassee, Florida.

While Dorian wasn’t catastrophic to Florida, shippers can remember how Hurricane Harvey in 2017 caused a major disruption in spot and contract markets. Carriers sent trucks into the Gulf Coast, prompting nervous shippers and brokers to pay higher rates for the remaining capacity.

There are no signs, however, that Dorian will jolt the market enough to reverse dwindling contract rates. “We experienced some tightening of supply in the Northeast over the Labor Day weekend, as well as in the Southeast (mostly hurricane related). Supply remains neutral to abundant across most other areas,” one shipper told Morgan Stanley in its biweekly survey. “We are still getting multiple calls daily from carriers wishing to get their foot in the door with us, and current carriers sending out wish lists for where they have trucks available.”

Dorf countered, “Even if there’s disagreement over the economic outlook, one thing is certain — truckload capacity is still in high demand.”

Falling intermodal rates means more savings for shippers

There are plenty of negative signals in the intermodal industry. Although the Cass Intermodal Pricing Index is up 1.2 percent and the Cowen-Chainalytics intermodal contract rates are 2.2 percent higher than a year ago, both growth rates are decelerating. Earlier this year, these percentages were up in the mid-to-upper single digits.

Intermodal volume is also trending negative year over year, down 4 percent since January and off 5.9 percent in the third quarter with three weeks remaining. 

“Overall, truckload rates seem to have bottomed, however, intermodal carriers continue to call in search of volume and tell us to name our price, a reversal of your typical pre-holiday peak season,” one shipper told Morgan Stanley.

Union Pacific Railroad, which announced peak conditions in July 2018, have not made any similar declarations this year. Peak conditions comes with shipper surcharges, similar to J.B. Hunt’s fees, so the lack of an announcement shows how conditions have flipped for UP.

There are positives, however, in the JOC Domestic Intermodal Savings Index, which suggests an opportunity for a rebound. One year ago, intermodal spot rates rose so much that shippers actually saved money sending goods by truck. This year, however, railroads are consistently lowering spot rates. The JOC spot intermodal national average has fallen sequentially each month in 2019, while truckload spot rates have bounced back from their May 2019 nadir.

Nationally, shippers can save about 10 percent on the spot market and 15 percent on the contract market using intermodal rail instead of truck. The unweighted national average rate was $1.68 per mile for truckload and $1.55 per mile for intermodal last month, based on spot rates for 115 lanes. One year ago, both modes averaged $2.00 per mile.

If these trends continue, shippers should consider whether to tender more under contract in 2020 and whether to rebalance their mix to include more intermodal, where appropriate.

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