Truckload index hits all-time high in March; intermodal index declines

A monthly index of truckload linehaul rates hit an all-time high last month, rising 5.1 percent from year-earlier levels. The increase comes as truckers continue to reprice their capacity upward to reflect tight supply due to a persistent shortage of truck drivers; elevated demand from a moderately improving retailing sector; and a dramatic fall in diesel-fuel prices, which is driving business from rail to over-the-road.

At the same time, rail intermodal rates last month stagnated or dropped compared with 2014 levels, as trucking's gain continued to be the railroads' pain.

The truckload index, published by Cass Information Systems Inc., one of the nation's leading freight-bill audit and payment firms, with $26 billion of shipper freight spending under management, and investment firm Avondale Partners LLC—both based in the St. Louis area—measure linehaul rates only and exclude the impact of fuel and add-on or "accessorial" charges. (The intermodal index includes all costs associated with the movement.) Avondale said in a statement that it expects carrier pricing to remain strong through the rest of the second quarter despite a relatively weak noncontract, or "spot," market to start the year.

It is estimated that in normal periods about 15 to 20 percent of the country's truckload freight is booked through the spot market. The balance moves under contracts.

Donald Broughton, Avondale's senior analyst and chief market strategist, said in the report that truckload rates in 2015 should rise by 4 to 9 percent. How individual carriers fare will depend on how much of an increase each extracted during 2014 contract negotiations and the timing of the hikes, Broughton said. He added that contracts that settled later in the year were consummated at higher rates than the compacts signed earlier in 2014.

The outlook is less optimistic for the intermodal segment, where rates in March dipped 1.6 percent from 2014, which followed year-over-year declines in January and February. Broughton said intermodal share continues to be adversely affected by two factors. First, there are lingering shipper concerns over service reliability that date back to the seize-up of the rail network during the first quarter of 2014. Another factor is the decline in energy prices, which has reduced demand for the transport of equipment used for hydraulic fracturing, or "fracking," in which drillers first bore straight down and then horizontally to release oil and natural gas from shale rock formations. Broughton also said the decline in diesel fuel prices has made trucking more affordable relative to rail, leading to shipper diversions from the rail to the highway.

As of Monday, the national average for on-highway diesel prices stood at $2.78 a gallon, up 2.6 cents per gallon from the prior week, according to weekly data published by the Department of Energy's Energy Information Administration (EIA). However, Broughton, in remarks last Saturday at the Transportation Intermediaries Association's annual meeting in Orlando, said diesel prices could be headed for another major leg down should their decline catch up with comparable drops already seen in the world price of Brené North Sea crude oil. Brené crude oil is sold on world markets and historically sets the price for other petroleum products, including West Texas Intermediate crude oil, which Americans are more familiar with because its price is established in the U.S. As of earlier this year, diesel prices had fallen at about half the pace of Brené and had not caught up.

Should the pricing lines between Brené and diesel converge, as Broughton believes they eventually will, diesel prices could fall to $2.25 and $2.30 a gallon. That move could dramatically accelerate the conversion from rail to truck and further darken prospects for intermodal.

Broughton added that the U.S. industrial sector is showing meaningful signs of faltering after a period of growth, and that it will be up to the consumer to propel economic activity. He said that trucking shouldn't be affected by the industrial decline because it generates a much larger share of business from retailing than from industry, and that consumer spending, which accounts for roughly two-thirds of the nation's economy, appears to be performing reasonably well.