Late produce season, freight boom pushing rates higher and pressuring broker margins
With spot rates now at two-year highs, brokers and shippers may be beginning to worry if they will face a situation that last occurred in 2014 and early 2015 when the average truckload spot rate was above the average contracted rate. While it may still be a bit premature to conclude that 2017 will see a repeat of 2015, it is a rate situation that bears watching.
“Margins for freight brokers have been under pressure,” Donald Broughton, managing partner of Broughton Capital, told FreightWaves.
Broughton noted that the oil boom in 2013 through early 2015, led by new fracking technologies, drove up contract rates as demand for trucking services increased. The oil collapse in late in 2015 changed that, though, and “by the time we started 2017, contract pricing was 2% to 3% below where it was at the end of 2015,” he said.
In its latest Trendlines report on spot rates, DAT noted rates and load postings remain strong. The dry van ratio was up 6% last week, with 5.5 loads posted per truck. The same was true in the refrigerator segment, which is now at 10.4 loads per truck, up 14% from the previous week. Overall, the number of posted loads gained 2.5% while truck posts dipped 1.2% on the spot truckload market during the week ending June 24.
On the rate side, spot truckload rates remained steady and are holding at nearly 2-year highs at $1.79 per mile, which is 10 cents higher than the rate in May.
The Atlanta region is particularly hot right now, as severe weather down south has contributed to the nation’s highest outbound freight rate of $2.29 per mile. That climbed 10 cents from the previous week, DAT said. Chicago, at $2.08 per mile also saw an increase of 4 cents.
On the reefer side, the national average rate climbed to $2.12 per mile, again with Atlanta leading the way buoyed by seasonal produce. The average outbound rate was $2.50/mile, up 5 cents.
“Atlanta was a super-hot market for reefers as well as vans, thanks to all the seasonal produce leaving refrigerated warehouses and food processing plants,” wrote DAT’s Peggy Dorf. “A lot of that produce originates in the Tifton and Macon markets in Southern Georgia, and is distributed out of Atlanta. The biggest gain came on the lane from Atlanta to Chicago, where rates rose 39 cents per mile to a total of $2.15.
Complicating matters is the economy. The American Trucking Associations reported that May’s advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index jumped 6.5%. That followed a downward adjustment in April’s reading, which ATA lowered from a 2.5% drop to 1.5%. In May, the index equaled 144.1 (2000=100), up from 135.3 in April.
Compared with May 2016, the SA index increased 4.8%, which was the largest year-over-year gain since November, ATA said. Year-to-date, compared with the same five months in 2016, the index is up 0.9%. For all of 2016, tonnage was up 2.5%.
The not seasonally adjusted index, which represents the change in tonnage actually hauled by the fleets before any seasonal adjustment, equaled 145.3 in May, which was 8.5% above the previous month (134).
“After three straight declines totaling 2.6%, truck tonnage snapped back in May,” said ATA Chief Economist Bob Costello. “One month does not make a trend, but the nice gain last month fits more with the anecdotal reports I’ve been hearing from fleets, at least more so than three straight months of decreases.”
The slow start to the year held contract rates in check, but as the 2017 oil boom continues and areas of the country such as California emerge from years of drought to produce record harvests, demand for trucking capacity has increased, driving up rates.