Although United States trucking companies were hopeful that a strong June was signaling an end to what’s been called a freight recession, the last 45 days indicate conditions are unlikely to rebound any time soon.
Shippers, motor carriers, and third-party logistics providers (3PLs) are facing an uncertain environment due to geopolitical trade tensions and signs the economy is slowing down and a recession may be looming. Whereas a year ago shippers were fighting to secure any truck capacity, it’s now the brokers and carriers that are cold calling to find freight, according to conversations with shippers.
According to the Cass Truckload Linehaul Index, US truckload rates didn’t increase in July, with no change compared with a year ago. It’s the first time the year-over-year percentage wasn’t positive since March 2017. DAT Solutions reports dry van contract rates were 8.3 percent lower than a year ago, the third consecutive month in negative territory after 25 consecutive months of growth.
Dry van spot rates are down about 20 percent year over year, according to DAT Solutions and a JOC.com analysis of 115 domestic US lanes. Spot rates fell about 2.5 percent from the previous month in July, and a preliminary JOC.com analysis shows rates are down about 1 percent sequentially in August.
“Current demand, rate, and supply sentiment all underperformed seasonality, decreased sequentially, and are now the lowest for August since we began conducting these surveys in 2011,” Ravi Shanker, an analyst with Morgan Stanley, wrote in his biweekly survey of shippers, brokers, and carriers.
Annual comparisons were up against last year’s extraordinarily tight market through July, however, so the fact that dry van rates are down may not mean a freight apocalypse. Spot rates were also higher in July than between January and May 2019, and this appears to be true through mid-August too.
The year-over-year comparisons also become easier beginning this month because the spot market peaked in June 2018 and then plunged 20 cents per mile between July and November 2018.
But Donald Broughton, principal of Broughton Capital and author of the Cass Truckload Linehaul Index and Cass Freight Index reports, believes the negative comparison will persist through the end of the year.
“The weakness in spot pricing is having an increasingly negative effect, and the truckload index will go negative [in August] and stay negative through the end of the year,” Broughton wrote.
A JOC.com analysis also shows shippers are paying about 10 to 20 percent less on the spot market than under a contract, even after factoring in brokerage markups. In a balanced freight market, the spot rate is usually higher than contract rates, which is why shippers sign annual contracts. But conditions are far from balanced and much different than a year ago.
"In a competitive market, imbalances — either an excess (or shortfall) of demand prompting prices to spike, or an excess (or shortfall) of supply prompting prices to fall — rarely last very long," wrote Aaron Terrazas, Convoy head of economic research, in an Aug. 15 blog post. "Demand and supply play a constant cat-and-mouse game driving prices up and down."
Searching high and low for freight
The Morgan Stanley Truckload Sentiment Survey confirms a lot of what shippers have been saying in recent conversations with JOC.com. According to the survey, brokers and carriers are cold calling to find freight while a year ago it was shippers cold calling to find capacity.
“I am contacted from brokers 10 times a day, and asset carriers at least 3 [times] per week. This will resemble the depths from 2009,” one shipper told Morgan Stanley.
“I continue to see carriers lower prices to protect volumes. Starting to see this more now on the asset side; earlier this year, only brokers were lowering rates. I expect to see asset providers provide flat to slightly down rates for 2020, based on preliminary discussions with our strategic carriers,” another shipper said.
Even a broker acknowledged the dramatic turnaround in market conditions. “Last year, the carriers who were demanding $5 to $6 per mile are taking this right on top of the head. Shippers should be hammering back and offering their freight to carriers who provided stellar service at a reasonable cost the past two years,” the broker told Morgan Stanley.
This doesn’t mean strategic shippers have turned transactional, nor that being a shipper of choice no longer matters.
Werner Enterprises CEO Derek Leathers told JOC.com that many shippers have remained committed to shipper-of-choice initiatives that began in the much tighter 2018 market. There has been some backsliding, however, which Leathers described as “four steps forward and one step back,” emphasizing the net positive in relations between carriers and shippers.