Reports show continued freight strength, higher rates, tight trucks

Another one of the transportation's industry's virtuous cycles is upon us, at least if recent data points and anecdotes are accurate.

A monthly index that measures line-haul truckload pricing rose 4.2 percent in September from the same period in 2016, hitting the highest level since the index was introduced in January 2005. Meanwhile, a monthly index of per-mile intermodal rose 4 percent year-over-year in September. The truckload index does not include the impact of fuel surcharges on pricing trends, while the intermodal index does.

Both indexes are published by Cass Information Systems Inc., an audit and payment company, and Broughton Capital LLC, an investment firm. Donald Broughton, who runs the firm that bears his name, said that truckload and intermodal rates have risen for the past 6 and 12 months, respectively, and the pace of expansion for each shows no signs of slowing.

Perhaps more striking is how quickly rate fortunes have turned. For example, within the past three months Broughton revised his 2017 forecast for truckload prices to rise by 2 to 4 percent. Earlier in the year, he had predicted a range of between -1 percent and +2 percent. The truckload index had declined for 13 consecutive months before breaking to the upside in March.

Broughton's upward revisions were prompted by the impact of a yearlong increase in noncontract, or spot, truckload prices. After a weak 2016, spot rates reversed course at the start of the year and have not looked back. They strengthened considerably in the second quarter, and then surged to multiyear highs last month. This surge is due to an increase in freight demand and the disruptions caused by Hurricanes Harvey and Irma, which siphoned truck capacity into the affected regions, leaving a shortage of trucks in parts of the country that badly needed them. In parts of California that experienced a late and strong harvest, there were, at times, six available loads for every truck, a very wide ratio. Spot rates in the state have spiked as high as 40 percent. Spot demand and prices have settled back somewhat but still remain elevated.

Spot rates for dry van and refrigerated truck services declined last week for the third week in a row, according to data from load board provider DAT Solutions. However, rates for all three equipment types (which include flatbed) are historically high for this time of year, DAT said. The consultancy said spot rates may rise again before Thanksgiving due to strong holiday retail sales and continued high demand for capacity.

Bradley Jacobs, chairman and CEO of transport and logistics giant XPO Logistics Inc., said truckload fleets and drivers have been pivoting from contract business to chase higher rates in the spot market. Jacobs, whose company operates a freight brokerage unit, said the unit tenders about half its freight to carriers through the spot market and the other half under contracts. In the second quarter and into the third quarter, the ratio was close to 80 percent contract and 20 percent spot, Jacobs said in an interview yesterday.

In addition, XPO's "tender acceptance" rate, a measurement of shipper tenders accepted by their carriers, has declined dramatically from a level of 96 percent in the first quarter and into a part of the second, Jacobs said. This indicates shippers and their brokers are finding it harder to procure capacity from their contracted carriers and are increasingly being forced onto the spot market. XPO, which has a big European ground transport business, is experiencing similar capacity tightness there as well, Jacobs said.

"A lot has changed in the past several months," Jacobs said.

Still, XPO's brokerage unit has maintained a profitable spread between what it pays the carriers and the marked-up prices to its shipper customers, Jacobs said. The unit's customers today are more concerned with capacity assurance and reliable service than with price and are willing to pay more for both, he said. Earlier this year, customers were more focused on price.

Greenwich, Conn.-based XPO's intermodal business also grew in the third quarter from what Jacobs called a "spillover effect" from traditional truckload shippers who may have found it hard to get capacity. The company reported third-quarter results late yesterday that set quarterly records for revenue, net income, and free cash flow.

In another sign of strength in freight demand, a separate monthly index of freight shipments and spending also published by Cass and Broughton showed year-over-year gains in September. Shipments across multiple modes rose 3.2 percent over September 2016, while expenditures rose 4.6 percent year-over-year, according to the index.