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TransCore: Rate hikes coming first—and dramatically—to spot markets

April 15, 2011
Higher fleet operating costs combined with capacity demand rising in tune with the economic recovery is driving truck rates up in many traffic lanes, but the action is most intense on the spot market, according to analysis completed by TransCore Freight Solutions

Higher fleet operating costs combined with capacity demand rising in tune with the economic recovery is driving truck rates up in many traffic lanes, but the action is most intense on the spot market, according to analysis completed by TransCore Freight Solutions. For example, spot truckload freight availability “hit an all-time high for same-month levels” through this year’s Q1.

Portland, OR-based TransCore serves brokers, carriers, owner-operators and shippers in the U.S. and via load boards that include TransCore 3sixty powered by the DAT Network in the States and Loadlink in Canada. The company also provides fleet compliance, distribution and intermodal services, automated carrier safety and insurance monitoring, truckload rate indices for contract markets and broker logistics software.

“Trucking companies and their customers are painfully aware of cost increases and the factors that are at play: fuel costs, regulatory changes including CARB and CSA, driver shortages aging equipment, difficulties with financing,” TransCore told FleetOwner. “These changes, coupled with increased demand due to a modest economic recovery, have driven rates up in many lanes across the country. Although the upward trend in cost may be steeper than the price increases, the improvement in rates is occurring first and most dramatically on the spot market.”

A key freight trend TransCore sees emerging this year is more freight being offered on the spot market. “One thing we’ve noticed is that truckload freight availability on the spot market more than doubled, with a 131% increase from 2009 to 2010, and it hit an all-time high for same-month levels through the first quarter of 2011,” the company said.

“Meanwhile, trucking freight tonnage increased by less than 5% in 2010 vs. 2009, according to the American Trucking Assns. That means a larger proportion of freight is being offered on the spot market, compared to previous years.”

As to whether freight offered on the spot market is accepted by carriers, TransCore has found that carriers haul 25% more spot freight in key lanes. “There is also evidence of a corresponding increase in actual spot market freight movements, so carriers are hauling more of those loads than before,” the company pointed out.

“Through TransCore’s Truckload Rate Index, we analyze rate trends in 7,000 lanes, with an in-depth focus on 64 high-volume lanes that represent the top headhaul and backhaul markets in the U.S. In February 2011, we saw 25% more truckloads moved in those 64 major lanes, compared to January. That’s a big increase in one month, even when we take winter weather into account. This trend is reinforced when we look at the rates for those lanes. For example, the fastest-growing cities for spot market freight were Atlanta and Columbus, and we have also seen rate increases for outbound loads offered by brokers. “

According to TransCore, another interesting fact about the spot market is that rates there are higher than carriers expect. “Most carriers assume that the loads found on load boards are ‘cheap freight,’and they are good only as an alternative to driving empty. But rates on the spot market – including load boards – are very dynamic,” said the company.

“Capacity is tight now, and rates are increasing much faster on the spot market than in the contract market. That’s because so many shippers slashed their rates during the recessionary period-- and they were reluctant to raise them again as the economy showed signs of recovery. “

TransCore also pointed out that carriers “tend to position their trucks to take advantage of higher-paying freight, and the low-paying customer suddenly finds there are no trucks available when he needs more than the minimum number specified in his contract. “

Carriers are also finding higher-paying freight in load boards, TransCore reported. “We discovered that spot market rates – the rates paid by the broker to the carrier – were higher than contract rates, on average, in 20% of the 7,000 major lanes in February. Rates are always influenced by the demand and capacity in each market, but even as a national average, the spot market rate for dry vans increased by an average of 10% in 2010, compared to 2009. At the same time, contract rates rose by only 1-2% for vans. Spot market rates continued to rise in the first quarter of 2011, and the gap is narrowing between the rates paid by the broker and a shipper’s contract rates, which change more gradually and modestly.”

However, even with rising rates, carriers will have their work cut out from to be more profitable in 2011. “Rates are likely to continue rising, due to the combination of increased demand coupled with constraints on truck freight capacity. Costs are going up, too, putting a strain on the carrier’s bottom line,” TransCore stated.

“It’s possible that demand could ease if economic growth stalls or reverses, due to fuel prices or other factors,” the firm pointed out. “A drop in demand could exert some downward pressure on rates. But capacity is already tight, and it can’t expand very fast to accommodate the peak freight season in the second and third quarters. That’s because it takes time – and good cash flow – to get financing for new trucks or to hire and train new drivers, and most carriers are cautious about making capital investments in an uncertain market.”

The bottom line, according to TransCore, is that “rates will probably continue to increase in 2011. They might level off under certain conditions, but rates are unlikely to decline from today’s levels. Of course, market conditions are local, so a national average or trend can only tell you so much.

“But on the whole, trucking companies can do well in 2011 if they are choosy about freight and lanes, and they maintain tight control on costs,” the firm concluded.

TransCore noted it has recently published its latest Broker Benchmark Survey, for which about 270 companies answered a detailed questionnaire on operations, revenue, margins, sources of business and carrier relations. To attain a copy of this report, click here.

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