By Mark Montague
It wasn’t until mid-September that we started to see the expected seasonal cooling of truckload rates and capacity on the spot freight market. The national average rate for van freight was a robust $1.85 per mile in the four weeks leading up to Sept. 14 (all rates include fuel surcharge and are derived from DAT RateView, which is based on $20 billion of actual transactions paid to carriers by brokers, 3PLs, and shippers). The average refrigerated van rate was $2.15 per mile during that same period.
Typically, spot rates rise at the end of each month as shippers rush to get freight out the door and finish the month on a high note. Rates then settle down as the next month begins, especially when the first week is shortened by a holiday.
Last month, there was a puzzling rise in national average rates in the first week of September. The healthy rates and capacity demand we saw during July and early August just motored on through Labor Day and deep into September, like an Indian summer.
One reason? We ate our fruits and vegetables.
During a bumper harvest like we’ve seen in 2013, less-temperature-sensitive fall crops like pumpkins, squashes, and potatoes can be hauled in insulated or vented vans, drawing van capacity out of the spot market. Also, a shortage of temperature-controlled trailer capacity in autumn tends to drive up van rates because those reefers aren’t available to haul excess van freight.
As produce season moved into August, rates continued to rise across the horizontal band of agricultural markets from central California east to Pennsylvania and New Jersey. Last month, markets in the Pacific Northwest were shipping potatoes and tree fruit, like apples. A later harvest of vegetables, berries, and other fruit kept reefer equipment occupied across the Upper Midwest and New England. As a result, van and reefer rates stayed higher than normal.
A Reliable Market Indicator
With the right data, you could see it coming.
You can track the progress of these harvest cycles on a map of load-to-truck ratios on load boards. Load-to-truck ratios represent the number of loads posted for every truck posted.
As demand increases or capacity tightens—or both—there is typically a response in the spot market rate. If the change is sustained, rather than a seasonal blip, the contract rates paid by shippers will often follow. By “often,” I mean more than 70% of the time, statistically speaking. So the load-to-truck ratio is an extremely sensitive advanced indicator of the kind of pressure that drives rate increases over time.
For example, in southern Idaho, the load-to-truck ratio nearly doubled during the first full week of September, from 17.4 to 35.6 loads per truck. In Eastern Washington, a prime apple-growing region, the load-to-truck ratio surged from 13.3 to 34.8. Fresno also moved up from a ratio of 6.5 to 8.3 as grape harvests continued.
In Michigan, another apple-growing region, the load-to-truck ratio was 21.0. In Minnesota, the ratio almost doubled from 11.9 to 20.5. Central Wisconsin (Appleton, Green Bay, Marshfield, Plover, etc.) moved from 37.3 to 59.6. Upstate New York is also harvesting apples and other tree fruit, and the load-to-truck ratio there jumped from 9.4 to 15.5.
All of this happened during the first week of September.
When it comes to measuring demand and capacity, load-to-truck ratios don’t necessarily tell the whole story. For example, many carriers will continue to search for loads even when they don’t post their trucks as available spot-market capacity. When freight volume is high, many carriers prefer to make phone calls instead of receiving them. This is especially true for small trucking companies, which make up the majority spot-market customers.
That said, load-to-truck ratios are worth watching. I track the 13-month history of load-to-truck ratios for each lane on the DAT network of load boards, alongside the rate history for the same period.
Taken together, these two sets of data provide a powerful basis for predicting the impact of demand and capacity shifts in specific markets and lanes. They’re the best indicators of pressure in the freight marketplace, and can help shippers, freight brokers, and carriers alike anticipate changes in rates and demand.
Mark Montague is the industry freight analyst for DAT, which operates the DAT® Network of load boards and RateView analysis tool based on the matching of more than 68 million spot (non-contract) loads and trucks per year. He holds an MBA in Transportation from Indiana University as well as a Bachelor of Science degree in mathematics and has applied his expertise in rates and routing for carriers, 3PLs, and shippers for more than 30 years. He is based in Portland, Ore. For information visit www.dat.com.