Freight brokers see more hot loads as carriers manage yield

An executive at Swift Logistics (NYSE: KNX) said he’s seeing the same thing in Swift’s network, and that load counts got “a good pop” this week.

On a year-over-year basis, national truckload volumes are up 3.81% (OTVIY.USA), and that positive level has been sustained now since the end of July. 

Those numbers track with the gradual growth that Matt Pyatt, chief executive officer at Austin-based Arrive Logistics, reported.

“Steady, but nothing crazy,” Pyatt said. “We grew load per day volume at a steady rate in September and are forecasting approximately the same growth in October.”

Dry van spot rates, on the other hand, have remained flat, except for a few lanes.

Chicago to Atlanta spot rates (DATVF.CHIATL) ticked up to $2.05/mile before fuel last week as volumes in the Southeast started to dry up and markets there become less attractive to carriers, but two brokerage executives said this week that the trend may be reversing. The Deep South belt, broadly from Baton Rouge to Atlanta, is heating up, and it’s becoming less expensive to move loads into the region.

Other backhaul markets like Seattle and Philadelphia are still pulling in carriers with above-average rates. Los Angeles to Dallas, the aorta of truckload freight moving into the interior of the country, has been sideways at $1.58/mile (DATVF.LAXDAL).

The belt of Midwest markets from Fayetteville and Little Rock, Arkansas, north to Cape Girardeau, Joplin and Quincy has appreciably tightened, especially for refrigerated equipment.

In our view, the increasingly favorable conditions experienced by freight brokers are a knock-on effect of decisions made by enterprise truckload carriers. It appears that approximately 10 weeks of positive year-over-year volumes have allowed truckload carriers to achieve their desired asset utilization. Now carriers are managing yield and rotating their fleets away from undesirable freight and back toward the more profitable dedicated part of their book.

Those irregular spot loads are falling down shippers’ routing guides and finding their way to brokers at higher prices, and because spot rates are fairly static, margins are widening. 

According to Bank of America Merrill Lynch equities analyst Ken Hoexter, more and more shippers believe that trucking rates will be stable, as opposed to falling, over the next three months. 

“With respect to rates, 28% of shippers expect rates to fall, down from 30% last issue, 65% of shippers expect rates to be flat, from 60% last issue, while 8% of shippers expect rates to rise, down from 10% two weeks ago,” Hoexter wrote in a September 26 investor note. “On capacity, 53% of shippers expect capacity to increase, from 60% last survey, 43% expect fleets to remain flat, up from 33% last issue, and 5% expect capacity to contract, down from 8% two weeks ago.”

Expectations continue to remain high for retail season as consumer spending has remained a robust performer in the economy, offsetting under-investment on the industrial side. 

In a September 25 investor note Deutsche Bank equities analyst Amit Mehrotra discussed “the divergence between strong underlying consumer demand and weaker data on the industrial side (i.e. slower IP growth and ISM <50). Retail sales growth was in line with truck tonnage in August (+4.1% year-over-year) while retail imports into the major U.S. ports increased 2.1% year-over-year.”

“Strong retail sales/truck tonnage has positive implications for truckload stocks KNX and WERN, which are most closely tied to consumer spending, though all U.S. transportation companies would benefit,” Mehrotra concluded.

If enterprise truckload carriers are exercising more optionality in their freight mix – and therefore sending out of network and cheap freight to brokers – that bodes well for third quarter financial results. We will be listening closely to the earnings calls from every publicly traded transportation company to hear how the third quarter ended and how management guides for the fourth quarter.