Spring Freight Comes In Like a Lion

By Mark Montague

There are lots of reasons to look forward to Spring—not the least of which is it’s been a dreary winter in much of the country. But for me, looking at the freight forecast, March holds particular interest because of what we saw in January.

In January, volume on the spot truckload freight market increased 24% compared to the previous month, reaching the highest-ever volume recorded for the month of January, according to the DAT North American Freight Index (for U.S.-only freight, the increase was 18% month over month). This marked the first time that freight availability increased from December to January. Over the past 10 years, there has been a 13% average decline in freight levels between those two months.

On a month-over-month basis, this unusual trend in spot-freight availability affected the three major equipment types to differing degrees: van loads increased 16%, refrigerated (“reefer”) freight volume increased 14%, and flatbed freight availability rose 28%. All told, compared to January 2012, spot-freight volume increased 36% for vans, 32% for reefers, and 7.9% for flatbeds.

What Drove the Numbers

This increase in activity is partly due to a higher number of weekdays in January. But there are other reasons:

- Higher levels of exports to Brazil, China, and Mexico. Much of this export freight is industrial freight, which tends to be spot-market freight.

- The “contract” marketplace—that is, loads that shippers directly contract out to carriers—shrank by 2.5% in January. This would have forced capacity into the spot market, which, while robust, is a smaller pool of freight.

The net-net of all this is that loads as well as trucks (capacity) greatly increased on the spot market in January.

No Corresponding Rate Increases

Unfortunately for most carriers, the big increase in the volume of freight did not bring a corresponding rise in rates. Indeed, the net impact on spot market rates through most of January was negative, as the excess capacity in the marketplace competed for available loads. Regarding contract rates, in January it appears that shippers readily found equipment near the top of their routing guide, keeping the pressure off of price increases.  So when diesel fuel prices increased recently, boosting the fuel surcharge numbers, we saw underlying line-haul rates dip even as the total rate stayed largely unchanged.

Generally speaking, it’s not unheard of for the spot market to grow even when the overall freight volume is contracting.  The spot market often absorbs the effect of a mismatch between demand and available capacity in the larger freight market. This mismatch can occur because of unexpected or large-scale changes in the freight marketplace or even in the economy. Specific markets, regions, and/or equipment types may be affected disproportionately, or there may be a broad trend among shippers to respond to economic conditions in a certain way.

Spot Market as a Barometer

Looking forward, remember that the spot market is a barometer for the freight market as a whole. A sustained increase in demand indicators on the spot market typically translates into an increase in spot market rates, often within days or weeks.  If rates remain high, and are not just a seasonal or event-driven blip, they are typically followed by an increase in the shippers’ contract rates.  The statistical relationship is strong enough to explain about two-thirds of an increase in contract rates.

We saw spot rates rise in early February, an atypical sign. Volumes continue to be strong for the first quarter, eventually this will absorb the excess capacity as we move into the warmer weather part of the year and construction picks up.  Fuel is also trending up now, with its own effect on transportation costs via the fuel surcharge. Van rates are likely to increase modestly in Q2 for contract carriers. As the weather warms up, I’ll be watching to see if January’s numbers were a forecast for a more robust Spring.

Mark Montague is the industry freight analyst for DAT, which operates the DAT® Network of load boards and facilitates 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.