Shipping volumes are picking up for rail, ship and pipeline but declining slightly for trucking, according to reports from several industry sources.
Cass Information Systems reported in the Cass Shipments Index for May that the month was the second-best ever, bested by only the month of May 2018. On a seasonally adjusted basis, shipments improved by 5.9% over April and by a whopping 35.3% over May 2020 numbers.
Tim Denoyer, vice president and senior analyst at ACT Research, wrote, “It’s safe to say the pandemic recovery is progressing much faster than the recovery from the Great Recession.”
On the truck side, volumes declined, according to the American Trucking Associations (ATA). The ATA reported a 0.7% decline in freight tonnage from April, which was 0.6% behind March.
It’s not as bad as it might seem, according to ATA Chief Economist Bob Costello.
“Tonnage, despite falling slightly over the last two months, remains well above the lows of last year,” he said. “This is no small deal considering that truck tonnage fell significantly less than many other indicators during the depths of the pandemic in the spring of 2020.”
Costello mentioned retail inventories being at historic lows, driven there by consumer spending of stimulus dollars received from the U.S. government. Restocking of inventories is expected to result in more freight for truckers.
It isn’t a lack of freight that is pushing volume levels downward.
“As has been the case for some time, trucking’s biggest challenges are not on the demand side, but on the supply side, including difficulty finding qualified drivers,” Costello explained.
Production of new trucks has been slowed by shortages of parts and materials, especially plastics and semiconductors. Currently, orders for 2021 model year Class 8 trucks are completely filled, with a nine-month backlog. Orders have recently slowed but are expected to increase again when manufacturers begin accepting orders for 2022 models.
Then, there are drivers. A driver force that has been gradually aging is not attracting replacements for the drivers who leave. Recent pay increases have stimulated driver churn, as drivers change carriers to take advantage of higher pay. They have not, however, attracted large numbers of new drivers to the industry.
When carriers can’t grow their fleets by adding trucks and can’t hire enough drivers to keep the trucks they have rolling, freight sits, waiting for an available truck.
Another factor impacting May volumes was the International Roadcheck inspection event (April 29-May 6). Many drivers and owner-operators scheduled time off during the inspection period, hoping to avoid costly delays and, in some cases, put off expensive repairs.
The good news is that freight rates remain high when capacity is in short supply, a condition that is helping more than a few truckers prosper this year.
Truckstop.com reported that total spot rates on its load board increased slightly, with a small decline in flatbed rates offsetting gains in van and refrigerated rates. For the month, postings declined slightly.
Average spot rates for van increased to $2.77 per mile while average refrigerated rates increased to $3.20. Flatbed rates fell by a penny to an average of $3.18 per mile.
The site reported that truckers are being very selective of loads, rejecting nearly one of every four.
On the DAT One load board, records were set for monthly average rates despite a 6% decline in posting volumes. Typically, volume reductions (reduced demand) drive lower rates, but the capacity crunch is severe enough that rates rose, anyway.
The national average for van freight at DAT was $2.69 per mile, setting a new record for van cargo. The national average rate per mile for refrigerated freight rose to $3.11 per mile, while flatbed average rates rose to $3.13.
Perhaps more telling are load-to-truck ratios at DAT. For every van truck posted on the board, there were 6.1 loads posted. Refrigerated loads were even more plentiful with 13 posted for each refrigerated truck posting. Flatbed load postings went through the roof with 97.1 loads posted for every truck posted.
Load vs. truck postings are not a one-to-one proposition, as many truckers look for loads on the board without posting their truck as available, but the climbing ratio numbers do indicate that the gap between available freight and trucks to haul it is widening.
On the West Coast, container ships are still stacked up, waiting to be unloaded, despite tremendous throughput at ports. Workers simply can’t unload them fast enough to keep up with the demand.
The Cass Freight Index for shipping expenditures increased by 49.9% this year over May 2020, but the comparison doesn’t mean much since little freight was moving at the height of the COVID-19 pandemic shutdowns.
For the coming months, capacity is expected to continue to tighten while the economy continues to produce more freight to haul.
“Even with considerable supply constraints, the freight cycle is in high-growth mode. The freight markets continue to benefit from a very strong retail economy, very tight inventories, and a backlog of containerships still anchored in the San Pedro Bay,” said Denoyer.
“In addition, U.S. capital goods orders have recently broken through a generational ceiling,” he continued. “We believe this portends an unprecedented U.S. capex (capital expenditure) boom.”
In a June 14 release for ACT Research, Denoyer noted, “Soaring freight demand has been overwhelming the industry’s capacity these past ten months, as the industry continues to cope with bottlenecks and shortages in this extraordinary recovery.”
Denoyer cautioned, however, that the good times for freight rates can’t last forever, saying, “While the pendulum of pricing power is clearly with the asset owners, we analyze several leading indicators which suggest it will begin swinging back to shippers in the coming months, with rebalancing likely in 2022.”
Increased costs for equipment and the fuel to power it, along with rising wages for drivers, will consume at least a portion of additional revenues derived from high freight rates. Regardless, truckers who want to work and can keep equipment running can look forward to more months of very favorable trucking conditions.