US truck pricing stabilizing in more ‘normalized’ peak season

US truck pricing stabilizing in more ‘normalized’ peak season

A truck travels in the United States.

According to load board operator DAT Solutions, US spot truck freight volumes were down 30 percent year over year in September, compared with last year’s frenzied hurricane-related surge in spot shipments. Photo credit: Shutterstock.com.

The first signs of moderation in US truck pricing in a year emerged in September, as an annualized drop in freight volume restored some balance to the spot truckload market. According to load board operator DAT Solutions, spot truck freight volumes were down 30 percent year over year in September, compared with last year’s frenzied hurricane-related surge in spot shipments.

Hurricanes Florence and Michael also hit the US a few weeks later than hurricanes Harvey and Irma in 2017, depressing freight flow in the Southeast and making the year-over-year comparison even tougher. Spot market rates held in September but did drop in the first week of October, although they are still higher than a year ago, during the initial price surge.

“The decline in load posting volume in the DAT load board marketplace actually signals a return to stability, as third-party logistics providers (3PLs) and freight brokers are able to find trucks more quickly,” explained DAT market analyst Peggy Dorf. “Volume can be expected to increase in the fourth quarter, although year-over-year increases may be muted due to the strength of comparable months in 2017.”

Falling spot truck rates have compounded fears among some Wall Street investment analysts that the US trucking market, and public trucking company earnings, may have peaked in the third quarter and are set to decline. They shouldn’t be worried, Lee Klaskow, senior freight transportation and logistics analyst at Bloomberg Intelligence, said in a JOC webcast.

The good news — the US economy

“The good news is the economy appears to have legs,” supported by tax reform and accelerated depreciation, housing starts, industrial production, and consumer spending, Klaskow said last Thursday. “Truckload rates have entered a prolonged cycle driven by tight capacity,” he said. However, “rate increases should moderate for low double digits to mid-single digits.”

North American truckload carriers increased revenue 17.7 percent in 2018, while less-than-truckload (LTL) carriers pushed up revenue 14.1 percent, Bloomberg Intelligence estimates. In 2019, Bloomberg Intelligence expects truckload carriers to raise revenue an additional 8.1 percent, and LTL carriers will gain another 7.4 percent, Klaskow said during the webcast on the fourth-quarter and 2019 trucking outlook.

Overall freight demand is up 8 percent this year fueled by industrial production, which Bloomberg Intelligence expects to increase 3.7 percent in 2018 compared with a 1.6 percent increase in 2017. For 2019, Bloomberg Intelligence forecasts a 2.7 percent increase. “No matter how you slice the data, trucking looks good,” said Klaskow. Difficulty hiring drivers will keep pressure on pricing, he believes.

Despite the decline in spot freight, rates are higher for all equipment types than in any year since at least 2010, DAT said. The national average truckload spot dry van rate reported by DAT for the week ending Oct. 13 was $2.13 per mile, 5 cents below the rate reported the previous week but 5 cents above the year-ago rate of $2.07 per mile, including fuel surcharges.

Measured in load-to-truck ratios, spot market demand peaked in June at 9.9 loads per truck, DAT data show, dropping to 7.2 loads per truck posted on DAT load boards in September. That’s still higher than the 6.6 loads per truck ratio a year ago and August’s 6.7 load ratio. The small August-to-September increase indicates a measured start to preholiday peak shipping.

A normal peak

“We think the next four to six weeks up through Thanksgiving should be very normal — it'd be a very normal peak,” David Mee, executive vice president and chief financial officer of J.B. Hunt Transport Services, said in an earnings call with Wall Street analysts Monday transcribed by Seeking Alpha. “We've seen the West Coast pickup the last week or so in September,” as expected, he said.

That normal peak will follow what’s expected to have been a very strong third quarter for J.B. Hunt and other US trucking and intermodal carriers. Just how strong a quarter is beginning to come into focus in the first third-quarter earnings reports from publicly owned companies.

J.B. Hunt’s third-quarter revenue rose 20 percent year over year to $2.21 billion, compared with $2.14 billion in the second quarter, a 24 percent annualized increase. Although derailments and Hurricane Florence cost the company about 4,000 intermodal loads in the quarter, revenue per load increased approximately 15 percent from a year ago, J.B. Hunt said in a statement.

Dedicated contract revenue was up 24 percent to $543 million, compared with $530 million and a 29 percent increase in the second quarter, according to company data. Revenue from J.B. Hunt’s non-asset Integrated Capacity Solutions division increased 28 percent year over year to $346 million, compared with a 56 percent jump to $347 million in the second quarter.

The over-the-road truck division, J.B. Hunt’s smallest and original unit, increased revenue 14 percent to 106 million in the quarter, but its operating profit sped up to the tune of 61 percent, totalling $9.2 million, thanks to higher rates per loaded mile and lower ownership costs.

J.B. Hunt’s expectation for a “normalized,” although still healthy, peak intermodal and trucking season through December echo early signals from other sources, including the Association of American Railroads, the Intermodal Association of North America, and the American Trucking Associations. After a chaotic year, shippers and carriers may welcome a “normalized” peak.

In early October, “Things are heating up, but not as much as we anticipated during [the] peak season,” of 2017, said Mike Burton, CEO of C&K Holdings, which owns C&K Trucking of Chicago. In intermodal, container and trailer loadings are rising at a steady pace. Spot truck volumes are down year over year now, but DAT doesn’t expect them to stay down long.

“I would not be at all surprised to see rates go up in the [fourth quarter], because that’s the trend in the last few years,” Dorf told JOC.com early this month. The electronic logging device (ELD) mandate helped inflate rates last December, but “with or without ELDs, we see rates go up [in the fourth quarter], and I attribute that to e-commerce,” now the largest catalyst driving peak pricing.

“We would argue that the peak has more legs,” said Klaskow, “and that it’s not a peak, but a plateau. The environment of higher rates for shippers is here to stay.”

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