Expectations for peak trucking spot rates continue to moderate

“Capacity has loosened up in the past week; not across the board, but more than expected,” said Michael Link, vice president of operations at Chicago-based freight brokerage Transportation One. “Capacity is not directly indicative of pricing right now, which leads me to believe that pricing is near the bottom of where it can go.”

But expectations for trucking spot rates in peak season are clearly moderating. Trucking Freight Futures traders on the Nodal Exchange have pulled the forward curve for national average spot rates down incrementally over the past 30 days (FWD.VNU, FWD30.VNU), although sentiment steadied over the past seven days. 

On the most volatile major lane in the country, Los Angeles to Dallas, dry van trucking spot rates went up through the month of September, breaching $1.59/mile after bottoming in August (DATVF.LAXDAL). Volumes outbound from Los Angeles have steadily climbed since the end of July, and with them rates, to the point that now trucking spot rates from L.A. to Dallas are only four cents per mile cheaper than intermodal rates on the same lane (INTRM.LAXDAL).

At the beginning of the year, trucking’s underperformance was clear as spot rates dropped well below intermodal rates for the lane, one of the most important intermodal lanes in the country after L.A. to Chicago. Enough volume left the rails (Class 1 intermodal volumes are down 5.7% year-over-year) to drive trucking rates back up, and now the two modes are priced equivalently. In that kind of competitive dynamic, trucking has an advantage in transit time and visibility. 

To the extent that Union Pacific (NYSE: UNP) and BNSF (NYSE:BRK.A and NYSE: BRK.B) want to grow intermodal volumes, they will need to cut rates and re-establish the customary intermodal discount to trucking rates. 

Chicago to Atlanta is still a well-priced lane, although rates dropped to $1.95/mile (DATVF.CHIATL), while rates from Atlanta to Philadelphia rose slightly to $1.75/mile (DATVF.ATLPHL). Although Atlanta volumes (OTVI.ATL) have been trending down, a recent upturn this week may have made the market more attractive to carriers, at least temporarily. 

Much more will be learned about the current state of the industry in the next two months as peak retail season plays out. Soft industrial and services Purchasing Managers Index prints this week point to a macroeconomic downturn that is, if anything, gathering momentum. The goods side of the economy is already contracting, although the strike against General Motors by the United Auto Workers, now in its third week, may have been an artificial drag on September’s industrial data. 

Salesforce still expects strong e-commerce growth this holiday season. Payroll numbers come out on Friday, October 4, and should provide a feel for the shape consumers are in prior to the shopping season. 

Perhaps even more importantly for the transportation industry, though, is the fact that annual contract bidding has already begun. While most of these contracts will not necessarily hold up for the next 12 months, a great deal of freight is being bid on now and for the next six weeks or so on the basis of current sentiment toward 2020 market conditions. Under- or over-performance on the demand side in the fourth quarter could change the calculus for carriers and shippers in this bid cycle.

A strong call – either bullish or bearish – has yet to be made in the trucking industry – the consensus seems to be that 2020 will look a lot like 2019, with healthy volumes and unspectacular rates.

“While upside price risk remains depressed, the severity of a rally in price, though likely short-lived, could be drastic due to the prolonged period of time spent near the ‘Idling Put,’” Linter’s note concluded.