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Uber Freight economist: Contract rates edging into negative territory

Capacity will continue to ease as truck OEM production recovers

(Photo: Jim Allen / FreightWaves)

Across Uber Freight’s network, truckload contract rates are well past their peak and now headed into negative territory compared to last year, officials from the firm told FreightWaves on Tuesday.

Uber Freight Senior Economist Mazen Danaf and Transplace Senior Vice President for Procurement and Engineering Ben Cubitt recounted how the U.S. truckload market quickly shifted at the beginning of 2022 as rates fell as fast as they had risen in 2020.

“In terms of rates, we saw an unprecedented increase in 2020, which remained elevated in 2021, across all spot rates,” Danaf said. “Then rates collapsed in 2022, which mirrored and paralleled the increase in June 2020. It was the most-rapid increase in history, and then in 2022, the most-rapid decrease. Rates were going down 30 cents per month for two months in a row. Since May or June, spot rates have been stabilizing at some level and continuing a slightly decreasing trend. However, what I’d like to bring up is that rates are stabilizing and still going against seasonality. We should expect rates to increase, but we’re seeing a slight decrease.”

According to Uber Freight network data shared by the company, spot rates for dry vans had fallen to 20% below contract by August 2022, and reefer spot rates were 17% below contract rates. Those trends imply continuing downward pressure on contract rates. 

(Charts: Uber Freight)

FreightWaves SONAR’s truckload data reveals similar spreads in the market. 

One index, RATES20.USA, displays the national average spread in dollars per mile between the National Truckload Index spot rate (with fuel surcharge starting at $2 per gallon) and SONAR’s contract rates. From January to May 2022, the spread fell from 50 cents to minus-50 cents per mile and stabilized, implying that spot rates are now 22.1% below contract rates.

“We see a lot of freight — we finish 15 to 20 bids each week,” Cubitt said. “More carriers are accepting their freight, there are more bids per lane, the number of carriers bidding is higher, and shippers are saving money. Carriers are clearly looking for freight and have some holes in their network. A carrier CEO told me that it’s a very ‘erratic’ market.”

Uber Freight’s network has swelled since its acquisition of Transplace nearly a year ago in November 2021, which added competencies in new modes of transportation, like intermodal rail and less than truckload, and drove density into the cross-border business and freight brokerage. In the second quarter of 2022, Uber Freight generated $1.8 billion in gross revenue, putting it on a $7.2 billion annual run rate. 

Cubitt emphasized that while overall freight volumes have been holding up — and Transplace has exposure to a wide portfolio of commodities, including the oil and gas and chemicals industries — the near-term outlook for rates is basically negative as the balance of supply and demand keeps tipping toward loosening capacity. He listed some hypotheticals that could stimulate demand, including a resurgence of housing starts or growing oil production, but said that many of Uber Freight’s carriers had grown too, adding 10-15% to the capacity of their fleets. 

“Tracking the Class 8 truck data, when you look at production or sales, they’re substantially up from last year, but not fully normalized yet,” Danaf said. “But if you look at truck orders, the market could tighten maybe next year. There are half the amount of truck orders as what you saw last year, which is just a reaction to spot rates. When you look at the OEMs’ backlog, it’s still healthy: 200,000 units of unfilled orders. It’s down from 300,000 a year ago, but it’s still a healthy backlog. Low truck orders might be setting a floor for market tightening next year.”

(Chart: FreightWaves SONAR. ACT Research Equipment Orders (Class 8 Trucks). To learn more about FreightWaves SONAR, click here)

Danaf’s read of the truck order data backs up a similar point made by Echo Global Logistics CEO Doug Waggoner in September when he predicted that many carriers will not be able to accelerate their truck buying next year, should the need arise.

Looking further upstream, Cubitt said railroad networks are still congested in Chicago and other hubs, that chassis were sometimes hard to find and that train speeds were way down to some of the lowest levels in five years. When markets were tight and high diesel fuel surcharges made truckload transportation more expensive, shippers looked for alternatives, he explained.

“I look for relief in truckload from intermodal, and while rails have improved, there are still chassis shortages and some ramps that are challenged,” Cubitt said. “Import volume from China has been so inconsistent.”

Danaf argued that the “rapid decline in spot rates” for ocean containers on the trans-Pacific trade lane had more to do with the expansion of capacity after West Coast port queues and congestion abated than it did with falling demand. Citing Container Trade Statistics, Danaf said the decline in container volumes has only just begun. Still, he conceded, the most recent ISM data is cause for concern, as manufacturers’ new orders contracted and, according to U.S. Commerce Department data, goods spending in August fell as well. 

Despite the storm clouds on the horizon, Cubitt said shippers are approaching this downturn a little more wary of unexpected externalities, transient disruptions and volatile capacity than in previous cycles. 

“Shippers are shifting from surviving, from just waking up every day and trying to find trucks, to being a little more thoughtful and strategic,” Cubitt said. “Shippers are trying to focus on service, getting the network stable and doing a lot of network optimization studies. They’re setting themselves up for 2023 and beyond to be able to support the network again and be a reliable part of the supply chain. There’s been a tremendous effort to educate C-suites that while cost-savings opportunities are available, it’s actually a good thing that our networks are more stable.”

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John Paul Hampstead

John Paul conducts research on multimodal freight markets and holds a Ph.D. in English literature from the University of Michigan. Prior to building a research team at FreightWaves, JP spent two years on the editorial side covering trucking markets, freight brokerage, and M&A.