Truckers work through Labor Day as market continues to soften

Over the past two years, the Labor Day holiday has signaled the beginning of an extended period of elevated activity in the truckload market — basically an extended peak season. Volumes and spot rates hit their highest levels of the year from September through December. 

Before COVID-19, there was typically a seasonal bump in activity around the holiday before the market settled through much of the fall before increasing leading into Thanksgiving. This week’s chart illustrates we are still far removed from pre-pandemic seasonality, especially when looking at load rejection rates. 

Looking back to 2019 — a relatively soft but seasonal year — spot rates increased around the five main national holidays according to the National Truckload Index (NTI). The main driver of increasing spot rates in a soft year is capacity being less available as drivers take vacations and home time around the holidays. While there are spikes in demand, it is not always beyond the threshold that carriers could handle with full employment. 

This year is a transitional one, marked by a rapidly changing economic environment. While consumer demand has been waning since early 2021, supply chain problems prompted companies to order more than they needed into early 2022 — leading to overflowing docks and warehouses.     

The oversupply of goods erased the sense of urgency that characterized the pandemic era and now most of the truckload market is not driven by consumption but inventory management. 

The glimmer of hope for carriers lies in the CLAV, which has not fallen as rapidly as the Outbound Tender Volume Index (OTVI), which measures the total of both accepted and rejected tenders. The CLAV has only declined roughly 6% since early March, while the OTVI is down a whopping 19%. 

Most of the volume has eroded from the spot market, which has largely been an overflow valve for capacity since July 2020. The CLAV only being down slightly is a sign that demand is not terribly far below the tipping point for where rates could see upward pressure once again. 

If shippers make aggressive moves by discounting goods toward the end of the year in an attempt to overcome the economic headwinds, there could be a peak season boom. A looming railroad strike could also have a strong impact. 

Even if this does occur in this best-case scenario for carriers, it will more than likely be short-lived without help from some other stimulating event. This is something Federal Reserve Chair Jerome Powell has made clear will not originate with him. 

At the very least, carriers should prepare for a very mild peak season and work on retaining as much of their contract rate increases they acquired over the past two years. 

About the Chart of the Week

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