The number of shipments available increased in July, pushing freight rates higher while diesel prices remained 20% lower than last year. Despite these positive factors, freight volumes remain well below last year’s levels.
The American Trucking Associations’ (ATA) For-Hire Truck Tonnage Index, compiled from data submitted by ATA members, decreased 5.1% in July after an 8.9% leap in June. The ATA index measured 109.6 in July, down from 115.5 in June. ATA’s index compares current freight levels to the average in the year 2015, so an index of 109.6 indicates freight levels were 9.6% higher than in 2015.
The index reached its low point in May this year and appeared to be recovering in June before the July decline. Compared to July 2019, the index declined 8.3%. It was the fourth consecutive year in which the index showed a decline.
Bob Costello, chief economist for the ATA, said the market was impacted by carriers operating fewer trucks.
“After a very strong June, for-hire contract freight tonnage, which dominates ATA’s index, slipped in July for a couple of reasons,” he said. “It is likely that tonnage was down because many fleets didn’t have the capacity to take advantage of stronger retail freight volumes. Therefore, much of that overflow freight moved to the spot market, which did increase in July.”
Act Research’s For-Hire Trucking Index for Volume fell by 6 points to 64.3. The ACT index measures against a baseline of 50, with anything above 50 representing positive movement and lower numbers indicating contraction.
ACT’s indexes for capacity and for driver availability both fell into negative territory at 48.1 and 39.3, respectively. Tim Denoyer, vice president and senior analyst for ACT, blamed a driver shortage for at least part of the declining volume of freight hauled.
“The sharp drop in driver availability as freight volumes are recovering explains the need for higher rates that we’re seeing in the spot market,” he said. “Consistent with industry estimates that CDL issuance this year is tracking about 40% below normal levels, the Driver Index has tightened sharply. We see this as the primary capacity constraint presently, as equipment remains available at this point.”
The Cass Freight Index, which measures shipments by air, rail, ship and pipeline in addition to trucking, reported that its raw index reading for July grew 4.8% over June numbers but is still 13.1% lower than July 2019 levels.
DAT, which regularly reports spot rate data and recently acquired the Freight Market Intelligence Consortium (FMIC), has stepped up its reporting game and provided some useful information about shipping volumes. The FMIC data is based on analysis of more than $50 billion in actual annual freight transactions supplied by a variety of consortium members, including major retailers, wholesalers, manufacturers, brokers and other organizations.
The DAT Truckload Volume Index reported that the number of dry van, refrigerated and flatbed loads in July rose 2.1% over June levels. In a departure from reports from other sources, DAT reported that those shipment levels were 3.7% higher than July 2019 levels.
On the rate side, DAT Trendlines reported that spot freight rates for van hit record highs in August after a substantial increase in July. For July, van rates averaged $2.04 per mile, while average refrigerated rates hit $2.30 and flatbed rates rose to $2.29 per mile.
DAT also provided some newer measurements to help clarify the rate situation. The FMIC reports a spot premium ratio (SPR) that compares average spot rates to average contract rates. Contract rates tend to change much more slowly than spot rates, so the SPR can indicate which direction the entire market is going. A positive SPR signals a tightening market with higher rates.
The July SPR was 23.5%, the highest level in two years. Because contract rate changes typically lag 12 to 18 months behind spot rates, the 23.5% SPR is an indicator that higher overall rates are coming.
Another new FMIC measurement is aimed directly at contract rates. The new rate differential (NRD) measures changes in rates when new contracts replace older ones. In July, the NRD was 3.7%, an indication that contract rates are rising.
Dr. Chris Caplice, chief scientist at DAT and FMIC, offered an explanation of why spot rates are rising so much more quickly than contract rates.
“First, carriers are honoring their committed volumes but not necessarily providing customers with additional surge capacity,” he said.
This assessment matches statements from other analysts about capacity restraints and driver shortages.
“Second, the volatility of shipper networks is creating new lanes to be covered, which are falling predominantly to the spot market,” he continued.
That’s a way of explaining that shipments may not be lower, but they are different. For example, the soft drink industry has had to change its distribution plan due to COVID-19 restrictions. People are drinking fewer soft drinks at restaurants, ballparks and other public venues and consuming more soft drink products at home. Because of this, fewer shipments are destined for public venues and more are going to distribution centers for grocery outlets. One carrier’s loss of freight can be a windfall for another — if they have the trucks to handle it.
“Third, it’s a reflection that carrier networks are still unbalanced, and while there are enough trucks out there, they are not necessarily in the right places for shippers,” Caplice concluded.
As for future freight volumes and rates, growth in both should continue, barring further shutdowns due to the pandemic. One result of the shipment turmoil is that some shippers will be looking for shorter contract periods, providing them flexibility to change with the market.
Whatever the source of the data, it appears shipments are increasing — and so are the rates paid to haul them. Optimism should be tempered by the continuing pandemic and the upcoming election, but the market is moving in the right direction.