Truckload spot market rates, imbalances extend 2015 weakness into 2016

The U.S. truckload spot market has found itself so far this year in the same doldrums where it spent most of 2015, a trend that, unless reversed, will put shippers in the familiar position of calling the pricing shots and motor carriers in the familiar position of taking them.

The spot, or noncontractual, market was weak during virtually all of last year, spiking upward meaningfully on a month-over-month basis only in December. Some chalked up the weakness to the markets reverting to the mean following an extraordinary 2014, when bad winter weather in that year's first quarter shut down capacity, sent spot rates soaring to record highs, and kept them elevated for quarters to follow.

But as the calendar has turned, the comparisons with 2014 have grown stale. After rising at the immediate turn of 2016, spot market load-to-truck ratios—the ratio of the number of loads per available truck—and spot rates slid across the board in the week ending Jan. 16, DAT Solutions, a consultancy that operates one of the nation's largest load board networks, said in a report late Wednesday. In the dry-van segment, load posts fell 21 percent from the week ending Jan. 9, while the number of available trucks rose 29 percent, according to DAT. This caused load-to-truck ratios to drop by 38 percent, DAT said.

The national average van rate fell 5 cents from the prior week to $1.68 per mile, which included a 1-cent decline in the average fuel surcharge, triggered by declining oil and fuel prices, DAT said. Spot rates are quoted to shippers on an "all-in" basis, which combines the base rate and prevailing fuel surcharge.

The refrigerated and flatbed spot markets didn't fare much better. "Reefer" load posts dropped 26 percent from the prior week, while truck posts jumped 22 percent, resulting a 39-percent fall in the load-to-truck ratio. The national average reefer rate dropped 6 cents, to $1.90 per mile, which included a 1-cent drop in the fuel surcharge. Flatbed loads held steady but available capacity increased 27 percent, resulting in a 21-percent decline in the load-to-truck ratio, DAT said. Average flatbed rates edged 2 cents down, to $1.90 per mile.

The DAT numbers come less than a week after investment firm Avondale Partners and audit and payment concern Cass Information Systems published their monthly truckload line-haul index, a measure of changes in per-mile line-haul rates that exclude fuel surcharges and accessorial fees. That data showed a scant 1.1-percent increase in December from year-earlier levels. This followed gains in October and November of 1.9 percent and 1.6 percent, respectively, the firms said.

What's more, spot rates decreased last month to levels not seen since 2009, a bothersome sign for contract pricing since spot market prices generally lead contract pricing, which accounts for as much as three-quarters of the enormous U.S. truckload market.

Avondale has forecast average contract rate increases this year of between 1and 3 percent, well below what carriers may have been expecting during most of 2015, when contract rates did the unusual and rose as spot rates fell. In what could turn out to be an understatement, Avondale said that "current spot market weakness have lasted long enough to begin to be troubling." Ben Cubitt, senior vice president of consulting and engineering for Transplace, a large third-party logistics (3PL) provider based in Frisco, Texas, agreed that shippers can now negotiate favorable rates. However, Cubitt said the current climate will likely not last forever, and any user that tries to kick a carrier when it's down will do so at its own peril.

Much has been made of the slowdown in the macroeconomy, which has hit end demand. Most of the decline has been felt in the industrial sector, normally the province of less-than-truckload (LTL) carriers. But retail did not burn the barn over the holidays, and that could be affecting truckload carriers as well. Another culprit in the drop in spot rates is the extraordinary decline in diesel prices, mirroring the sharp fall in oil prices. On Tuesday, the Energy Information Administration (EIA) said in its weekly report that average on-highway national diesel prices dropped 7 cents a gallon, to $2.11 per gallon, the lowest national average price since the worst of the Great Recession in March 2009. The price declines caused fuel surcharges, which are mostly pegged to the EIA data, to be adjusted downward, leading in part to the fall in spot rates.

A third factor could be the current relative abundance in capacity, defying the multiyear projections of shrinkage in rigs and drivers. Net new orders—new orders minus cancellations—of heavy-duty "class 8" tractors hit 28,150 units in December, the best monthly numbers for an otherwise subpar year since February, according to consultancy ACT Research. The big winners were dual-driver "sleeper" tractors, which had their best production and order year ever, ACT said. Trailer deliveries also set a record in 2015, ACT said.

December orders are generally placed by big truckers looking to get their replacement requirements in order ahead of the new year, according to Kenny Vieth, ACT's president. The deliveries will be spread evenly throughout the four quarters, he said in an e-mail yesterday

But the year-end buying binge may be the last feast for a while, according to ACT. "With excess freight-hauling capacity and slowing freight growth, freight rates have softened to the point where many truckers are now taking a wait-and-see approach before committing to more new equipment," Steve Tam, ACT's vice president, commercial vehicle sector, said in a statement that accompanied the final December tractor net-order figures.

In an interesting twist, Peggy Dorf, a market analyst for DAT, said that truckers may have used their significant savings from the decline in fuel prices to invest in new rigs. The firm did not immediately show data to support that claim, however.

As for drivers, the wild card may be how many—if any—oilfield workers who may have been laid off in the wake of the decline in domestic shale-oil and gas drilling activity choose to transition into the trucking sector, which is still looking at a significant shortage of qualified drivers in the next few years.