Dry-van truckload pricing could turn negative through 2016, firms say

Dry-van truckload line-haul rates could fall into negative territory in 2016, dragged down by persistent deterioration in noncontract, or spot, pricing, according to a report issued yesterday by investment firm Avondale Partners LLC and freight bill audit and payment firm Cass Information Systems Inc.

The firms said van truckload line-haul pricing for the year will come in at between minus 1 percent and 2 percent, with continuing weakness in demand and a corresponding rise in capacity keeping rates firmly in check. Yesterday's announcement represents a downward revision from last month, when the firms forecast that rates in 2016 would rise between 1 and 3 percent. They added at the time, though, that the risks to the forecast were to the downside.

In February, the truckload rate index rose 0.5 percent year-over-year, compared with a similarly modest 0.4-percent rise in January, the companies said. The gains in the index are due to a firming in contract pricing based on negotiations during the same time frame in 2015. Contract pricing applies to more than 95 percent of the freight hauled by publicly traded truckload carriers. By contrast, spot rates, which account for about 25 to 35 percent of the vast truckload market, including public and private carriers, has declined decisively into negative territory, the firms said. The dilemma for carriers—and conversely an opportunity for shippers and third-party logistics providers—is that contract pricing tends to follow spot-market trends with a few months' lag.

The pricing weakness is even more acute in intermodal, where demand for rail services have declined as low diesel prices continue to drive freight back to the highway. The intermodal index prepared by the two firms fell in February by 3.8 percent year-over-year, marking the 14th consecutive month of year-over-year declines. Intermodal rates will continue declining through 2016 as low diesel prices take its toll on domestic demand, the firms forecast.

According to Avondale analysts, any gains in domestic container traffic, which accounts for the vast majority of U.S. intermodal business, will depend on whether demand in the longer lengths of haul in the western U.S. can offset declines in the more densely populated eastern half of the country, where stage lengths are shorter and where trucking services are more cost-competitive with intermodal.

Spot truckload rates have been weak for more than a year. With demand flattish and a plunge in diesel-fuel prices propping up capacity by keeping marginal carriers in business, there has been relatively scant appetite on shippers' part for spot-market services. In addition, truck users may be looking to capitalize on attractive contract rates to lock in prices ahead of what many observers believe will be a capacity contraction in 2017 and 2018 due to the cumulative impact of government regulations. However, soothsayers have been predicting a sharp capacity shortage for years, only to miss the mark virtually every time.

Ben Cubitt, senior vice president, engineering and strategic carrier management for Dallas-based 3PL Transplace, which works extensively with truckload carriers, said in an e-mail today that capacity is "amazingly loose" and that rates remain "very, very soft." But in a contrary view, Mark Montague, industry rate analyst for DAT Solutions, a Portland, Ore.-based spot-market load-board operator, said that van and flatbed rates have recently stabilized after a long period of weak demand. DAT's load-to-truck ratios, which measure the number of dry van loads per available truck, are showing signs of recovery, a trend which usually points to higher spot rates in the near future, Montague added.

"It may be premature to forecast negative rates increases for contract rates in 2016," Montague said in an e-mail. "A lot depends on how the next three months shape up."