US truckload market to flip in Q1 2021: Coyote Logistics

US truckload market to flip in Q1 2021: Coyote Logistics

Coyote Logistics says trucking is waiting for a “bounce back” from the bottom hit by the economy in April. Photo credit: Shutterstock.com.

Although US economic activity and freight demand fell into an “abyss” in March and April, the coming months will see gradual improvement leading to a shift in the US trucking market, with tighter capacity driving higher rates for shippers by early 2021, according to Coyote Logistics.

“We think the second quarter will be the bottom of the economy and freight market,” and the bottom of the second quarter was April, Chris Pickett, chief strategy officer of the third-party logistics provider and author of the Coyote Curve forecast, said in a webinar Thursday.

“We’ll see a slow recovery the rest of the year and then rocket into 2021,” with spot market truckload rates rising year over year in the first quarter of the year, Pickett said.

Although they’re still struggling through the recession, shippers should begin thinking about that recovery and that market inflection point now, Mike Sinkovitz, senior vice president for collaborative transportation management at Coyote, said during the webinar. 

That means sticking close to core carriers and freight brokers. “It’s important to be tied closely to your partners and not make knee-jerk changes because of the immediate environment,” such as abandoning long-term partners to chase low spot market rates, Sinkovitz said. 

Shippers and carriers alike are recognizing that collaboration this year will be key to a successful recovery and avoiding a capacity and pricing crunch next year, he added. “On the shipper side, we’re seeing a surge in collaboration that wouldn’t have happened” without the pandemic, said Sinkovitz.

Several factors could delay or blunt the Coyote Curve, which tracks cyclical changes in truckload spot rates, but Pickett sees the upward trendline as inevitable. “Everything we talked about happening in 2020 last year, barring a relapse of COVID-19, starts in 2021,” he said.

At the moment, however, trucking companies and many of their customers are hoping to get to the third quarter, let alone 2021. According to Bloomberg, the pace of corporate bankruptcy filings this year has outpaced every year since 2009, following the 2008 financial crisis.

“We’re concerned about carriers going out of business,” said Sinkovitz. 

Waves of spending, or COVID-19?

Coyote has had to adjust its forecast rapidly as the coronavirus disease 2019 (COVID-19) and recession overturned previous projections. Coyote’s forecast is predicated on two assumptions: first, that consumers, supported by government aid, will resume spending, and second, there is no significant second wave of COVID-19 that disrupts the economic recovery this fall.

“The unemployment issue will be a challenge, but the degree of government stimulus will help support consumption of non-durables,” especially foods and household products, Pickett said. “If that consumption picks up, jobs could come back faster, and accelerate the recovery.”

The pandemic remains the wild card, with many economists and trucking industry analysts saying a full recovery in consumption and freight demand may not occur until a COVID-19 vaccine is distributed or test kits for the disease are widely and easily accessible.

“It’s hard to see a repeat of March and April,” in terms of lockdowns and shutdowns, Pickett said. “It could happen, but how much of an impact it would have depends on the distribution of tests, vaccines. But it would put a cap on the rate of recovery in the freight market.”

Halfway through the second quarter, he believes the recession is scraping bottom, with the Coyote Curve spot market index 9 percent below its base, after entering the quarter 5.8 percent above that base. “That shows the whipsaw effect of the economic shutdown,” he said.

Coyote will release its latest Coyote Curve report the week of May 25.

Spot rates stabilizing after April plunge

DAT Solutions spot market data show dry van rates, not including fuel surcharges, rose 8.6 percent in March from February, averaging $1.65 per mile nationwide, as demand for essential goods soared. That average price dropped 12.1 percent to $1.45 per mile in April.

Spot truckload capacity dropped 17.5 percent in the week that ended May 17, a sign that capacity is shifting to the contract market as states open up their economies, DAT said Wednesday. Even so, spot pricing power is sticking with shippers and brokers.

Data from digital broker Loadsmart shows the unweighted average dry-van spot rate on approximately 200 top US freight lanes dropped 4.8 percent from April into the third week of May, falling to $1.59 per mile. That’s down 16.3 percent from an average of $1.90 per mile in March.

Compared with a year ago, spot truckload rates are still down 16.2 percent, Truckstop.com said in its spot market analysis for the week ending May 15. The digital spot marketplace also saw loads — i.e., demand — increase 26.8 percent from the previous week, while trucks posted — i.e., capacity — rose only 0.1 percent.

Truckstop.com’s average market spot rate, which combines dry-van, refrigerated, flatbed, and specialized rates, rose 1.2 percent from the previous week to $1.75 per mile. Dry-van spot rates were up about 5 cents per mile and were only 7 percent below the same week a year ago.

There are signs the season is beginning to push up outbound rates from certain areas, California and Nevada, Oregon and Washington, and Georgia and Florida in particular, according to the Loadsmart data. But Pickett doesn’t believe produce seasons will give shippers “much of a pinch.”

“There is still enough surplus [truck] supply in the marketplace,” he said. “We’ll still have a beverage season, baking season, Christmas trees, etc., but the impact on overall truckload rates won’t be as dramatic as we saw in 2018 or 2014,” both boom years for trucking.

Waiting to bounce back

Coyote’s senior vice president for business operations, J-Ann Tio, said the broker is “still waiting for that bounce back” off the bottom. “We’re already seeing volumes rebound out of certain markets, and we haven't seen challenges getting capacity,” she said during the webinar.

Truck capacity is expected to contract as the recession puts smaller carriers out of business and triggers the failure even of larger carriers, such as Comcar Industries, that have high debt or low liquidity. How much excess trucking capacity will be cut by the recession is hotly debated. 

At some point, rising freight demand will intersect with truck capacity, flipping the market and leading to rate increases, Pickett said, adding that he believes we may reach that intersection sooner rather than later. “We’re looking at capacity scarcity by the end of the year,” he said.

One reason is depressed truck orders. “There’s a whole cycle of incremental truck buying that will not happen in 2020,” Pickett said. On the other hand, the US still has a glut of new trucks from a record 482,000 Class 8 orders in 2018, according to FTR Transportation Intelligence.

Still, a gradual increase in demand will eventually overtake supply reduced by layoffs, and parked trucks, he said. “If nothing fundamentally changes in the structure of the trucking industry, we’re back to the inflationary period we predicted for this year in 2021.”

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