Trucking's peak is upon us
It's October in August, and US shippers are stuck on a truck pricing plateau.
Welcome to the third edition of The Fifth Wheel with Bill Cassidy, a weekly look at a particular aspect of trucking and transportation that’s on my mind or in the news or just caught my eye. Something of a reporter’s notebook. I’ll also post occasional insights and reflections on transportation history.
Remember the “summer doldrums”? That period between July 4 and Labor Day when freight shipping took a holiday? Normal “seasonality” vanished last summer and hasn’t really reestablished itself this year. I did my best by taking a portion of the last two weeks off, but there’s too much going on to unplug entirely.
The big question I’m hearing from shippers is when will this truck pricing cycle finally turn, giving them some relief from double-digit rate increases? Obviously, after a year of rapidly rising truckload and less-than-truckload rates, as well as higher intermodal rail, ocean, and air freight costs, they’d like a break.
They may get a breather. There’s a lot of argument and less agreement that spot market truckload rates are flattening out, albeit at record high levels. There’s some evidence in the Cass Truckload Linehaul Index for July that overall truckload rates may have peaked and are slowly, slowly, falling -- on average.
The July Producer Price Index for general freight, long-distance, truckload carriers slipped 0.4 percent from June, although it is up 21.4 percent from July 2020, points out Jason Miller, associate professor of logistics at Michigan State University and someone you really, really should follow on LinkedIn.
“On the dry van side, it appears contract prices have hit their plateau for this freight cycle,” Miller wrote in a LinkedIn post this Thursday. “The questions now are how fast and far they fall; my guess is a slow, small decline unless something odd happens on the trucking capacity side.” Repeat: “a slow, small decline.”
That’s not the kind of transportation budget relief shippers would like, but it may be the best they can get – if we have indeed reached a contract truckload rate plateau. Others don’t believe we have. “We’re not past the high point yet,” Dean Croke, principal analyst for DAT Freight & Analytics, told me this week.
He pointed out that contract rates tracked by DAT are still rising “albeit at a slightly slower rate.” The monthly average DAT contract rate was up 8 cents to $2.79 per mile in July, an 11-cent increase from May. Contract replacement rates were up 6 percent over the last two weeks compared with the prior two weeks.
Croke believes trucking’s peak season began two months early this year, advanced by continued high demand and global supply chain disruption. That’s not surprising when many shippers say they’ve advanced their orders for pre-holiday imports by months to ensure they get goods to shelves by November.
National averages may show truckload spot rates flattening and spot market load volumes declining, but drill down to specific lane data and you’ll get a different picture. Declines in certain lanes are more than balanced by heightened demand in others – especially lanes originating from Southern California ports.
DAT chief of analytics Ken Adamo last month described the trucking market as “Crazy Town.” I think we’re at the corner of Insanity Avenue and Unprecedented Boulevard. There’s a bar on that corner called “Rumors” (there’s one in every town). They have lots of truck rate forecasts on tap there.
If you were to ask for mine, after a pint of Sour Shipper Ale I might tell you this: I think there’s more room for rates to climb higher in this mess of a market than for them to drop. All it would take is a couple of Class 5 hurricanes. Or another COVID-19 outbreak that closes a major Chinese port or slows US hiring.
Whether we have a slow, small decline, or a steady but slight increase in truckload rates through the remainder of 2021, shippers are going to be stuck on this pricing plateau without a clear trail down to the valley floor far below. A descent may well take them more than a year, certainly more than a few months.
Logistics managers will need to have deep, serious discussions about this with their CFOs, CEOs, and procurement and salespeople, who will need to understand that this current phase of carrier pricing power and elevated rates isn’t likely to end until we see a reversal in demand, not just a calmer consumer.
And then they will need to call their carriers, and third-party logistics providers and brokers. They’ll need to rethink the bidding process – and I do hear more and more shippers are looking at short-term, more specific contracts, as well as longer-term contracts, or no new bids at all if that keeps capacity at the dock.
Here are some recent stories on the topic from myself and my colleagues at JOC.com:
So-Cal truck demand spiking on record intermodal rates, railyard congestion (Aug. 13, 2021)
Peak season arrives early for US trucking (Aug. 12, 2021)
US truck rates may soon peak, but they won’t fall far: analysts (Aug. 11, 2021)
Thanks for subscribing to this newsletter. For those that don’t know me, I’ve been the senior editor for trucking and domestic transportation at The Journal of Commerce and JOC.com since 2009. Before that, I spent 13 years as managing and executive editor at Traffic World, a weekly magazine once owned by the JOC.
I can be reached at bill.cassidy@ihsmarkit.com, on Twitter at @willbcassidy, and on LinkedIn.