A softer freight market has led spot rates to decline amid excess capacity, and the rates are expected to flatten through the remainder of 2019, logistics experts said.
Ben Cubitt and Matt Harding, both executives of logistics company Transplace of Frisco, Texas, provided a freight market update as part of an event Thursday (Aug. 22) in downtown Bentonville for shippers of consumer packaged goods. With offices in Lowell, Transplace recently announced it will move to a 148,000-square-foot building in Rogers along Interstate 49. It is expected to open in early 2021 as the company’s Northwest Arkansas headquarters.
Cubitt, who is senior vice president of consulting and strategy services for Transplace, said to expect spot rates to be flat for the remainder of 2019. The weekly average rate levels are following a similar pattern to the rates in 2015, he said. Cubitt noted that contract rates typically begin to fall three to six months after spot rates decline. Dry van spot rates fell 18.9% in July, from the same month in 2018, according to DAT Solutions.
Cubitt also said drivers are struggling to earn what they did in 2018 as the miles aren’t available for them to drive like last year.
Harding, who is senior vice president of data science for Transplace, said to watch for bankruptcies in the industry. A maritime regulation going into effect Jan. 1, 2020, could lead to more bankruptcies, depending on how it impacts the price of diesel. The regulation set by the International Maritime Organization is expected to reduce sulfur emissions for marine fuels.
About 15 to 20 of the shippers who attended the Bentonville event, participated in a poll, and 71% said that more capacity is available this month than was available in July. The majority of shippers budgeted for costs to increase in 2019, from 2018, but 71% are below budget so far this year. Shippers had mixed reactions for their outlook for 2020 as far as costs rising, falling or remaining flat.
Harding also discussed past cycles and orders of class 8 trucks, the largest truck class, and that orders range between 250,000 and 300,000 trucks annually. He compared periods of declining orders and recession and explained that while orders have declined recently, they have in the past without leading to a recession. In July, orders fell 80%, from the same month in 2018, according to ACT Research. If the United States goes into a recession, rates are expected to decrease or remain flat in 2020, Harding said.
The Cass Shipments Index fell 5.9% in July, according to the Cass Freight Index Report. Donald Broughton, founder and managing partner of Broughton Capital, is the author of the report. After the recent declines in the shipments index, it looks to be “signaling an economic contraction,” the report shows. However, the index faces tough comparisons from 2018, and the index has declined without being followed by a negative GDP. But the transportation sector is experiencing weakness domestically and internationally. There’s a growing risk that the GDP will become negative by the end of the year.
Meanwhile, the American Trucking Associations’ (ATA) advanced seasonally adjusted for-hire truck tonnage index rose 6.6% in July after it fell 1.2% in June.
“Tonnage in 2019 has been on a rollercoaster ride, plagued with large monthly swings, which continued in July as tonnage surged after falling significantly in May and June,” ATA Chief Economist Bob Costello said. “However, take out the month-to-month noise, and you see that truck tonnage is still on a nice upward path. It is important to note that ATA’s tonnage data is dominated by contract freight, which is performing significantly better than the plunge in spot market freight this year.”
The index rose 7.3% in July, from the same month in 2018, according to the ATA. It was the largest year-over-year increase since April.
The ATA also recently released its U.S. Freight Transportation Forecast to 2030, and it shows that total freight tonnage is expected to rise 25.6% to 20.6 billion tons in 2030, from 2019. Over the next decade, total freight transportation revenue is expected to increase by 53.8% to $1.6 trillion. GDP growth is expected to slow to 2.1% by 2020 and to 1.8% by 2021. The price of a gallon of diesel is projected to rise 10 cents to $3.29 in 2020. Between 2020 and 2030, it will rise about $1 to $4.28 per gallon.