Freight availability outpaces truck capacity, continues to drive rates higher as market balance tightens

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Flat bed truck on highway
Spot rates are generally much faster to respond to economic pressures, and they are currently reaching record levels. Flatbed rates of $2.44 per mile declined by a penny per mile in November compared to October rates.

Freight levels rose faster than the number of available trucks in October, driving prices higher. That’s the general consensus among several data sources viewed.

ACT Research, for example, reported its For-Hire Trucking Volume Index at a seasonally adjusted 70.7. Under the ACT system, anything higher than 50 is growth in the market. At the same time, ACT’s Pricing Index dropped slightly to 69.2.

Perhaps the most meaningful of the ACT indexes is its Supply-Demand Balance Index, which came in at 74.9. This means freight is far outpacing capacity or, more simply, there aren’t enough available trucks to haul everything being offered for shipment. An index of 50 would mean the amount of freight and number of trucks are in balance, but the index has topped 65 for five consecutive months.

“As capacity tightened further, volume (demand) remained elevated, tightening the market balance even further from already tight levels in recent months,” said Tim Denoyer, ACT Research’s vice president and senior analyst in a late-November press release.

Denoyer pointed out that new Class 8 truck sales have been robust and could increase capacity in the market, but the possibility of a steel shortage could slow production in coming months.

The Cass Freight Index for shipments came in at 1.180, just 0.3% above September levels but 2.4% better than October 2019. It was the first month this year that shipment totals exceeded the same month of last year. It’s important to note that the Cass index shows shipment totals for a variety of modes of transportation including trucking, rail, pipeline, ship and air.

The American Trucking Associations’ For-Hire Truck-Tonnage Index is exclusive to trucking, but it is restricted to reports from ATA members. The data provided mostly comes from larger carriers receiving contract rates and doesn’t always reflect what the entire trucking market is doing. October is a case in point.

While other sources were reporting increased shipments in October, the ATA reported its index fell 6.3% from September numbers. In September, the ATA reported a 6.7% increase after being in negative territory for July and August, later revising the September gain downward to 5.7%.

For comparison, the ATA index in October was 106.8. Since the index is based on 2015 numbers, the October index was 6.8% higher than October 2015.

There are a couple of reasons for the difference in ATA’s numbers compared to other sources. The biggest is probably a customer base that includes a lot of manufacturers. Shipments of retail goods have been carrying the economy, while manufacturing has yet to return to its pre-pandemic level. Another reason is that large carriers are typically hit harder by driver shortages, a growing problem in the industry.

Spot rates are generally much faster to respond to economic pressures, and they are currently reaching record levels. Van rates averaged $2.45 per mile nationally in November, a nickel higher than October and 8 cents higher than September. Refrigerated rates averaged $2.69 in another record month. Flatbed rates of $2.44 per mile declined by a penny per mile in November compared to October rates, ending months of increases. The decline is probably based more on seasonality than on economic conditions, since construction tends to slow as the weather cools.

The impact of retail shipments continued to climb, and could grow even higher if current buying trends continue. In its “Monday Morning Blog” entry for Thanksgiving week, even before the Black Friday shopping holiday, FTR Intel led with the headline, “Holiday sales are already 11% above last December.”

The blog quoted U.S. Census Bureau figures showing that U.S. industrial production increased by 1.1% in October, while manufacturing rose by a percentage point. Production of both durable and nondurable goods increased as well. Additionally, both existing home sales and permits for new home construction rose in October. All of these are indicators of a growing economy.

The latest issue of ACT Research’s Transportation Digest described the down-and-then-up roller coaster ride the trucking industry has experienced this year. The report attributed online sales as having an impact on retail markets.

“According to the Bureau of the Census, retail data show non-store sales, primarily e-commerce, from May to September were over 17% of retail activity, a material increase from a 14.5% average in 2019,” noted Kenny Vieth, ACT Research’s president and senior analyst. “Stating the obvious, e-retailing got a big boost when the shutdown drove households to do emergency shelf stocking and avoid brick-and-mortar retail locations.”

The news, however, isn’t all rosy. COVID-19 infection rates have risen to new heights, and hospital wards across the country are overwhelmed with patients. In response, jurisdictions across the country have been implementing shut-down rules for businesses, along with mask mandates. Democrats that have called for a national shutdown may get their wish as President-elect Joe Biden takes office in January. Even without federal mandates, however, numerous states, as well as cities, have already implemented restrictions.

Truck drivers are already experiencing difficulty finding open restaurants where they can obtain meals, and some fast-food locations are restricting hours or closing dining areas.

On the flip side, legislators are still trying to hammer out a stimulus/relief plan that would provide supplemental unemployment payments and other benefits, possibly including cash payments, to Americans who are still suffering the economic effects of the pandemic. An added incentive could be the U.S. government budget, which expired Dec. 11. A stimulus bill could be tied to a new budget or a continuing resolution as a bargaining chip.

Barring a complete shutdown, trucking is poised for a strong close to 2020 and a good start to the new year.

For over 30 years, the objective of The Trucker editorial team has been to produce content focused on truck drivers that is relevant, objective and engaging. After reading this article, feel free to leave a comment about this article or the topics covered in this article for the author or the other readers to enjoy. Let them know what you think! We always enjoy hearing from our readers.

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