Energy Sector, Flatbed Loads Lead the Way

By Mark Montague

At a glance, the numbers look pretty good: spot market freight volumes reported by the DAT North American Freight Index finished the first quarter of 2013 up 7.7% compared to Q1 2012 and rose 11% over Q4 2012.

However, the quarter’s gains were propped up an unusually strong January before dipping seasonally in February and March, when freight availability sagged to 4.5% below the same-month total in 2012. These softer freight volumes continued well into April, the start of the second quarter.

So far this year, the rate picture on the spot market has been softer than volumes. In March, rates rose compared to February across all equipment types: both vans and flatbeds increased 2.4% and reefer rates rose 2.1%. However, compared to last year, reefer freight rates are only slightly ahead, flatbed rates are a dime-a-mile below, and van rates, though moving in the right direction, are slightly below seasonal expectations (rates are derived from DAT RateView, which is based on $18 billion of actual transactions paid to carriers by brokers, 3PLs, and shippers).

It seems like just when freight volumes and rates start to move up, they’re tamped down by weather or generally sluggish consumer spending.

Flatbeds: A Jolt of Energy

One segment continues to provide a boost to the freight markets: oil and natural gas, as reflected in flatbed rates and the number of available flatbed loads.

Flatbed trailers and freight make up a significant percentage of posts to the spot market, with most hauls being less than 600 miles. However, an increasing number of flatbed loads involve longer hauls, which tells me they’re being used to support the oil and gas business. Typically, you might have a piece of machinery that comes into a Southeastern port from Europe, goes to a warehouse in Houston, and then is dispatched out to West Texas or Montana or North Dakota when it’s needed. When I survey the top flatbed lanes in the United States, it’s not surprising that “Houston to Bismarck” comes up a lot (Bismarck is often a staging area for hauls into the Bakken region).

Another indicator of the strength of the oil and gas market is the number of spot loads moving in the nation’s midsection. That belt of states from Texas to Oklahoma, Kansas, Nebraska, Wyoming, the Dakotas, and Montana has some of the strongest load-to-truck ratios we’ve seen in the past nine months. If consumers were spending, I’d expect to see more activity in the port areas.

Other Good Signs

Another positive indicator for the over-the-road freight market is the drop in Class-8 truck order cancellations, which in March fell to their lowest levels since Q3 2010, according to ACT Research.

Overall, Class-8 orders climbed above 20,000 units for a sixth consecutive month in March, with net orders of just over 22,000 units. In the Class 5-7 medium-duty segment, net orders for March totaled 15,400 units, a volume just below both February and year-ago March levels.

Class-8 cancellation levels are a measurement of truckers’ confidence. “What’s important to bear in mind is that a cancellation has to happen at least three months ahead of when the order is to be built,” says Kenny Vieth, ACT’s president and senior commercial vehicle market analyst. “If orders are not being cancelled, buyers are in effect saying they view the orders they’ve placed as still being in line with what they expect the economy to do in the next three to six months.”

Also, the American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index gained 0.9% in March after decreasing 0.7% in February. Tonnage has now increased in four of the past five months and is up 7.6% since November 2012. In March, the index equaled 123.5 (2000=100) versus 122.3 in February. Compared with March 2012, the index is up 3.8%; year-to-date, compared with the same period in 2012, it’s up 3.9%.

If trucking does indeed serve as a barometer of the U.S. economy, representing 67% of tonnage carried by all modes of domestic freight transportation, the needle hasn’t moved much so far this year. But it has moved in the right direction.

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.