Gap between van truckload spot, contract rates continues to widen

Spot market line-haul rates for truckload shipments moving in dry vans, the most commonly used form of trailer, have declined to the unusually wide differential of 35 cents per mile below contract rates, according to consultancy and load-board provider DAT Solutions.

The 26-percent gap (23 percent when fuel surcharges are factored in) likely reflects subpar end demand for dry goods; bloated inventory levels; deflationary pricing on apparel and general merchandise; and more carriers on the road, due partly to the profound drop in diesel fuel prices that has been a relief to cash-strapped truckers. The last element may become even more important if, as transport analyst Donald Broughton of Avondale Partners LLC forecast earlier this month, diesel prices could fall another 25 to 50 percent just playing catch-up to the fall in the price of oil.

There are also significant gaps between spot and contract rates for goods moving on refrigerated and flatbed equipment, though not as extreme as in dry vans, DAT said. For reefers, the differential was 31 cents a mile, DAT said. For flatbeds, it was 29 cents a mile.

Spot prices have been dropping for well over a year. The 2015 declines were seen as the unwinding of an ultratight 2014 market, which was triggered by foul winter weather in the 2013-14 period that paralyzed much contract carriage and forced shippers to turn to the spot market at near-record high prices. The continued drop in the spot pricing market well into 2016 is more of an indication of weak demand and shippers migrating to contracts, where they receive some level of capacity assurance at a guaranteed price. Spot market demand has fallen off, and prices have headed south with it.

At XPO Logistics Inc., the Greenwich, Conn.-based broker and third party logistics provider (3PL), contracts account for 80 percent of brokerage business, according to Bradley S. Jacobs, its chairman and CEO. Under contracts, prices are locked in for the year for which XPO guarantees capacity, Jacobs said. At the same time, though, XPO covers its commitments in the spot market, where pricing is soft. The difference between the fixed contract selling price and the sluggish spot-buying prices have created healthy margins for XPO's brokerage operation, Jacobs said.

"Brokerage is a good business right now," he said in an e-mail.

For the first time, the trade group Transportation Intermediaries Association (TIA) benchmarked its members' performance against much broader indexes of activity created by consultancy FTR Associates and load-board firm Truckstop.com. In virtually all instances, TIA activity exceeded the broader universes measured by FTR and Truckstop.

The notion that brokerage is a bright spot in an otherwise difficult transportation sector could be seen at the TIA's annual meeting, held earlier this month in San Antonio. There were around 1,100 attendees, a record turnout. Robert Voltmann, the group's long-time president and CEO, was recently awarded a five-year contract extension.

Still, brokers are not immune from the problems in the economy and, by extension, in transportation. Contract rates could drift down to levels that narrow the chasm with the spot market. Bids have become more competitive, a sign that shippers are bearing down hard to extract contract concessions. The combination of weak demand and lower fuel-surcharge revenue means carriers are making less money now than in prior years, whether the transaction is between a shipper and carrier or a broker is involved. Regardless of whom shippers deal with, they appear to have the upper hand, according to Mark Montague, pricing analyst for DAT.

There will be persistent concerns about the economy and the advent of so-called Uber-brokers, which use wireless technology to connect shippers and carriers while disintermediating the traditional broker. For all that, however, the brokerage sector has remained a good place to seek shelter from the storm.

Editor's note: This article has been updated to include information about refrigerated and flatbed equipment.