Spot rates keep falling, but the threat of a rail strike and seasonal demain aid market

Truckload volumes on the spot market were lower overall in November but showed strength during the latter half of the month on holiday season demand and as shippers sought shelter from a possible freight rail strike, DAT Freight & Analytics reported on Dec. 14.

DAT’s Truckload Volume Index (TVI) for van freight was 218, down 9.5% compared to October and 4.4% lower year-over-year. The refrigerated TVI was 170, 4.5% lower than the reefer index in October and down 5% year-over-year. At 218, the flatbed TVI also fell—11% compared to October—but was 13% higher year-over-year, according to a release from DAT, which operates the DAT One truckload freight marketplace and the DAT iQ data analytics service.

“There was seasonality in the van and reefer markets around the Thanksgiving holiday, but also a surge in volume in major intermodal ramp markets like Los Angeles, Chicago, and Kansas City,” said DAT’s analytics chief, Ken Adamo. “Shippers used the spot market to reduce the risk of disruptions ahead of a potential rail strike.”

That risk was a reality until Congress stepped in Nov. 30 to block the rail strike and avert widespread economic fallout that would have affected several industries, including trucking, during the busy 2022 holiday shipping season.

Despite some conditions that propped it up, the spot market continued a slump in November that began in earnest this spring and summer and has continued since. Spot rates last month were lower for all three equipment types, DAT reported, and down significantly over rates on the market last year, when it surged and smaller operators sought to capitalize by filling the marketplace looking for freight to haul.

The spot van rate fell 5 cents last month to $2.38 per mile, a 55-cent decline year-over-year, while the average reefer rate was $2.80 per mile, down a penny from October and 65 cents lower than last November. The average flatbed rate was $2.82 per mile, 6 cents lower than October and down 24 cents year-over-year.

As opposed to negotiated contract rates, spot rates are “all-in” and are negotiated as one-time transactions between freight brokers and carriers. They do not include separate fuel surcharges, which have insulated larger fleets (which for the most part use the contract market) from this year’s spike in diesel prices.

“November contract replacement rates—the difference in the rate when one contract ends and another begins—were 12% and 16% lower for vans and reefers [in November], respectively, compared to October,” Adamo added in the DAT release. “We expect spot and contract pricing to continue a downward trajectory but for the gap to narrow during the first quarter of 2023.”

Line-haul rates (subtracting an amount equal to an average fuel surcharge) also shrank—to their lowest point in nearly two and a half years, DAT said on Dec. 14.

The dry van line-haul rate dropped 6 cents to $1.71 a mile, and the reefer rate fell 2 cents to $2.07 a mile, the lowest since June 2020 when fuel surcharges averaged 19 cents for van freight and 21 cents for reefer freight. The line-haul flatbed rate averaged $2.02 a mile, down 7 cents month-over-month and 54 cents year-over-year. Line-haul van and reefer rates have fallen each month since January, when they were $2.70 and $3.15 a mile, respectively, according to DAT.

Load-to-truck ratios also were down in November to their lowest point in many months, DAT said. An indicator of demand on the spot market, these ratios declined for all three equipment types, dry van, reefer, and flatbed.

The national average van load-to-truck ratio was 2.7, meaning there were 2.7 loads for every van posted to the DAT One network. The van ratio was the lowest monthly figure since May 2020 and 1.5 less than in November 2021. The reefer ratio averaged 4.9, down from 5.1 in October, and the flatbed ratio was 9.3, down from 12.5 in October. The flatbed ratio fell for the eighth straight month.

Spread between spot and contract rates widens

Currently, there is a considerable spread between contract and spot rates, and that gap increased in November, DAT also reported.

The national average shipper-to-broker contract van rate fell 2 cents in November to $3.07 a mile—69 cents higher than the spot van rate for the month—and 12 cents higher than the contract van rate last November. The average contract reefer rate was $3.37 a mile, down 1 cent from October but 27 cents higher year-over-year, and the average flatbed rate increased by 3 cents to $3.65 a mile, a 31-cent increase over November 2021.

The spread between spot and contract rates for van and reefer freight increased during November. Average spot and contract van rates were virtually equal in February. While spot rates have fallen throughout 2022, contract pricing has been softening since the middle of the year, DAT said.

The DAT Truckload Volume Index reflects the change in the number of loads with a pickup date during that month; the actual index number is normalized each month to accommodate any new data sources without distortion, according to the DAT release. A baseline of 100 equals the number of loads moved in January 2015, as recorded in DAT RateView, a truckload pricing database and analysis tool with rates paid on an average of 3 million loads per month.

‘Challenging year ahead’

The volatile spot and contract freight markets add to what DAT called a “challenging year ahead for trucking” in a Dec. 13 blog post on DAT’s website, in which Adamo and Dean Croke, DAT’s principal market analyst, interviewed Lee Klaskow, senior analyst for transportation and logistics with market researcher Bloomberg Intelligence, who offered some pointed predictions for trucking in 2023.

In the exchange, Klaskow addressed the high contract rates, brought on by tight capacity, in 2021 “that were not sustainable” and that should return to Earth in the new year. “Those rates will likely come back to lower levels, dragging the overall contractual rates down. Some rates are down 15% or 20%, some lanes flat, and others down the net-net where we see a low to mid-single-digit rate decline,” Klaskow added.

Regarding rates, he added in the interview: “With the OEMs returning to more normalized supply chain patterns, they are not quite where they need to be, but they are getting normal. So, we think trucking will [have] another challenging year in 2023. But we don’t believe the sky is falling, and it’s all doom and gloom. The spot market may begin to turn in the second quarter and third quarter of next year as the market rebalances from what reality was, which was too much capacity in the market over the last eight months.”

Klaskow also addressed challenging overall business conditions that the trucking industry could face in 2023: "Trucking companies and individual operators are facing higher costs than they’ve ever faced before. Insurance costs have skyrocketed. Equipment costs are incredibly high, and because fuel costs are so high, the cost to operate a truck is now at a higher base rate than it did a year ago, two years ago, or even three years ago. And shippers need to know that if fleets are not making profits and reinvesting in their equipment, then you’re not going to have a high-quality trucking service.”