No freight rate increases forecasted yet for trucking

March 13, 2017

Freight demand stable but rates are not budging

Demand for trucking and logistics services is strong and continuing to soar, according to a variety of metrics tracked by Stifel Capital Markets, but if motor carriers expect this trend to lay the groundwork for rate increases, don’t hold your breath.

“Most shippers are not in the mood for rate increases, presently. Many are offering their carriers an opportunity to retain their existing lane awards provided rates remain flat at depressed levels or are sandpapered down further,” noted John Larkin, managing director and head of transportation capital markets research at Stifel, in a recent research brief.

“In short, the negotiating power still largely resides with shippers and not the carriers,” he added. “Shippers are aware of the risk of capacity reduction, associated with the ELD [electronic logging device] implementation, fleet downsizing, and an ever-worsening driver shortage. Yet they press on with strong demands for great service at low or even lower-than-low pricing.”

That recalls past comparisons Larkin made between such behaviors and the overall Neanderthal-like strategies many shippers remain engaged in.

Yet, all that being said, the “fundamentals” of freight demand are shifting, if slowly, back to motor carriers – and so we may be closing in on the long-awaited “tipping point” when freight rate power returns to the hands of trucking companies.

Here are a few freight metrics that illustrate this pending shift Stifel noted in “Week 9” or “W09” in the firm’s parlance for 2017:

The Truckstop.com Market Demand Index (MDI) increased 18.0% sequentially from the prior week to 21.15; up 81.1% year-over-year from W09 of 2016. That’s the first significant increase so far in 2017, Stifel noted.

DAT Solutions load-to-truck ratios (LTT) were positive in W09 both sequentially and year-over-year.

DAT reefer LTT increasing from 4.4 to 5.7 loads per truck, up 84% year-over-year, as load posts increased by 24% last week and truck posts fell 4%.

Fleetowner Com Sites Fleetowner com Files Uploads 2017 03 13 Larkin1

Stifel's John Larkin. Photo by Aaron Marsh for Fleet Owner.

DAT’s dry van LTT increased from 2.3 to 2.9 loads per truck, up 81% year-over-year, as load posts increased 21% and truck posts fell 4%.

Finally, DAT flatbed LTT continued a strong upward trend from 29.0 to 34.6 loads per truck, up 134% year-over-year, as load posts increased 13% and truck posts fell 5%. This was the fifth consecutive week of increases for the flatbed LTT.

In contrast, W09 of 2016 was extremely weak year-over-year when compared to 2015; the LTT ratio was down 72% in reefer, down 57% in dry van, and up only 6% in flatbed. So demand in 2017 by contrast is rocketing upwards in a positive direction.

On the pricing side, DAT spot rates were also positive both sequentially and y/y this week. The year-over-year trend for pricing has been positive for the past few weeks, while back in W09 of 2016, spot pricing declined 14% to 20% range.

In W09 of 2017, however, the reefer spot rate increased one cent from $1.87 to $1.88 per mile, up 4% year-over-year, while the dry van spot rate increased four cents from $1.62 to $1.66 per mile, up 6% year-over-year, and the flatbed spot rate increased six cents from $1.96 to $2.02 per mile, up 10% year-over-year.

Truckstop.com rates also increased sequentially and were positive year-over-year, Stifel added.

Larkin noted that as things stand now, freight demand remains “neither good nor bad” for trucking. While inventories are moving towards targeted levels and some signs of industrial expansion are appearing, he explained that not all motor carriers are able to keep all their trucks hauling remunerative freight all the time at this point.

But that may soon change.

“When the market flips, it will be interesting to see if shippers that have not been unkind to carriers, will change their rate-only focus when supply and demand tighten,” he said,

If and when that happens, of course.