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Truckload linehaul spot rate drop accelerates under pressure from surging diesel prices

FreightWaves’ Future of Supply Chain summit is being held this week in Northwest Arkansas, the epicenter of North American supply chains. If you aren’t able to attend, you are welcome to tune into our free live stream that will carry all of the content from the main stage. The event kicks off on Monday at 9 a.m. ET.

At the event, we will be introducing several new data products, including a new national index that is assessed and published every day (NTID.USA). This is based on the FreightWaves SONAR Trusted Rate Assessment Consortium (TRAC) data and published based on the prior day’s reports. All assessed rate reports require booking dates to ensure that the data maintains consistent integrity. 

In addition to a daily index, we are also releasing a daily business day index, which eliminates weekend reports; and a 7-day rolling average index that tracks the prior seven days (NTI.USA).  

All of these indices provide a high-frequency look at the freight market since they are updated and published and available for SONAR subscribers overnight. In addition, we are planning to announce an expanded data relationship with Truckstop.com, so SONAR customers will have deeper access to freight market intelligence and rate information. 

From this daily index, we are also introducing a linehaul-only 7-day moving average spot index (NTIL.USA), which provides an estimated spot linehaul rate, net of fuel. This eliminates estimated diesel fuel costs from the index, based on fuel consumption of 6.5 miles per gallon (MPG).  This is calculated by taking the FreightWaves National Truckload Index 7-day rolling average and subtracting the estimated daily truckstop retail diesel (DTS.USA) and dividing by 6.5 (MPG).  

FreightWaves has offered a daily national truck stop retail diesel index for years, but since it tracks closely with the DOE weekly average (DOE.USA) there hasn’t been a great deal of interest in the daily data. But with retail prices so volatile these days, daily updated truckstop retail diesel has never been more relevant. 

By removing retail diesel from the index, SONAR subscribers can see how spot market carriers are performing in the market. With diesel prices experiencing unprecedented price acceleration, there has never been a more important time to track diesel and linehaul separately. 

(Note: many fuel surcharge tables use a diesel cost base of $1.20-$2.00/gallon. We decided against this because we wanted to understand the cash flow for a carrier, net of fuel. If you want to add a base in for $1.20/gallon at 6.5 MPG, you can add $0.185/mile or at $2.00/gallon you can add $0.307/mile to the linehaul rate. Since the index is always net of fuel with zero cost base, the index will track the carriers’ revenue net of fuel.)

From April 30 to May 6th, trucking linehaul-only spot rates (7-day moving average) dropped $0.09, from $2.17 to $2.08, making it one of the largest weekly drops since linehaul rates net fuel peaked on January 14, 2022. 

This per day drop was one of the largest one-week drops in the index and at a pace that is almost twice as fast as the average from the peak set on January 14th at $3.01/mile. In the 113 days since the peak, the spot linehaul-only index has dropped $.93. That is a drop of $0.008/mile per day.  This past week, the drop was $.0128/mile per day, more than a penny a mile per day.

Diesel fuel increased by $0.36/gallon, from $5.19/gallon to $5.55/gallon, during the same seven-period between April 30 and May 6th, which translates to an increase of $0.055/mi. Surging fuel costs likely limit what a carrier can get for linehaul since truckload spot is always quoted in gross and freight brokers have an amount in the load that they are willing to pay regardless of fuel. This can be deadly when gross spot rates are falling at the same time.

The rapid deterioration in the truckload spot market has caught nearly everyone by surprise, even experts at FreightWaves. When we published our article on March 31, 2022, about an imminent freight recession, linehaul-only spot rates were at $2.42/mile. They have dropped by $0.34/mile – or 14% in the 37 days since that piece was published. 

The rate of decline prior to the article was $.0078/mile per day and since has accelerated to $.0091/mile per day.

This is happening against the backdrop of what is normally a strong season for trucking companies. The spring and summer seasons bring produce demand, beverages, along with outdoor-related home and gardening goods. We simply aren’t seeing it this year.

The last time we saw truckload spot linehaul rates net of fuel this low was on February 14, 2021. In February 2021, mid-size carrier operating ratios were 100+, according to TCA data. This was the only month since summer 2020 that truckload ORs were over 100. 

(Blue is the operating ratio for truckload carriers [OPRAT.VCF] mostly mid-sized van operators and the green represents the National Truckload Index Linehaul only [NTIL.USA]). 

While the majority of the freight hauled by mid-market carriers happens in the contract market, there is an inverse relationship between trucking spot rates and operating ratios. With carrier profitability so marginal, a big downward swing in spot rates can mean the difference between a profitable month and an unprofitable one. 

It’s unlikely that we will see a quick turn-around and sudden rally in the truckload spot market. The SONAR outbound tender rejection index (OTRI), a measurement of the percent of loads in the truckload contract market that has been rejected by truckload carriers continues to fall. This demonstrates that carriers operating in the truckload contract market are more willing to take committed loads from shippers at pre-negotiated contracted rates. 

Outbound tender rejections (OTRI.USA) is at 8.38%, down from 20.9% on January 14, 2022. It is unlikely that spot rates will find a bottom as long as OTRI continues to fall. While tender rejections measure the contract market, the two markets are fungible and linked. As contracted carriers reject freight, a portion of that freight will be sent over into the spot market. The less contracted freight that gets rejected, the less overflow contracted freight there is in the spot market. 

The last time OTRI.USA was this low was on June 14, 2020. 

Operating costs for truckload carriers (net of fuel) have increased at least 7% since February 2021. This includes everything from driver wages, maintenance, insurance, operating staff, and equipment. This is creating additional headwinds in the market. 

A great deal of financing in trucking is tied to floating interest rates, not fixed interest rates. Increasing financing costs will put additional pressure on trucking carriers. Truckload carriers with high exposure to spot rates are at financial risk at these levels. If the pressure continues, it is going to squeeze spot carriers out of the market.

Data mentioned in the article is available exclusively on FreightWaves SONAR. If you are interested in learning more visit: sonar.freightwaves.com

Craig Fuller, CEO at FreightWaves

Craig Fuller is CEO and Founder of FreightWaves, the only freight-focused organization that delivers a complete and comprehensive view of the freight and logistics market. FreightWaves’ news, content, market data, insights, analytics, innovative engagement and risk management tools are unprecedented and unmatched in the industry. Prior to founding FreightWaves, Fuller was the founder and CEO of TransCard, a fleet payment processor that was sold to US Bank. He also is a trucking industry veteran, having founded and managed the Xpress Direct division of US Xpress Enterprises, the largest provider of on-demand trucking services in North America.