Freight rates are expected to rise leading into the holiday shopping season as a hurricane along the East Coast disrupts carrier operations and causes a spike in spot rates.
In a recent report on the third quarter, third-party logistics company Coyote Logistics sees the market at an inflection point in which demand is starting to rise again and is expected to lead spot rates to increase into the fourth quarter.
Dry van spot rates fell 15.1% in August, from the same month in 2018, according to DAT Solutions. The truckload market was starting to show signs of improvement before the Labor Day weekend, and news of Hurricane Dorian led to a rise in freight volume as shippers looked to move freight ahead of the storm. Capacity tightened and spot prices rose for the week ending Sept. 1.
The hurricane has led to the closure of three service centers of Fort Smith-based ArcBest, said company spokeswoman Kathy Fieweger. ArcBest is the parent company of less-than-truckload carrier ABF Freight. The centers affected by the storm are in South Carolina, North Carolina and Georgia. Earlier this week, some operations were closed in Florida but those have since reopened. Fieweger encouraged customers to visit arcb.com for the most recent information on service impacts.
After making landfall in the Bahamas as a Category 5 storm, Hurricane Dorian has slowly been moving along the U.S. East Coast. As of mid-morning Thursday (Sept. 5), the storm was just off the coast of South Carolina and packing 110 mph winds as a Category 2 hurricane, according to the National Weather Service. Hurricane-force winds extend 60 miles from its center, with tropical-storm-force winds extending up to 195 miles. Also, storm surges up to 8 feet are expected along parts of the South Carolina coast along with rainfall of up to 15 inches. The storm is expected to weaken over the next few days as it moves to the northeast.
In a recent report regarding the impacts of hurricanes on the transportation industry, senior research analyst Benjamin Hartford and research analyst Andrew Reed, both of Baird, explained how transportation stocks tend to outperform the S&P 500 after a hurricane makes landfall. Stock performance tends to be the strongest in the three months following a hurricane that makes landfall in July. After hurricanes in August and September, stocks rise 3% and 2% on average, respectively.
With regard to the 2019 holiday season, Coyote expects it won’t have as much of an impact on overall spot rates and service levels as usual because of the existing soft market. But capacity issues could lead to challenges in the supply chain. As a result, shippers might look to meet their spiking freight needs by using mobile storage or leased trailers, the report shows.
“The 2017 and 2018 market caused a lot of pain for many truckload shippers as rates jumped to historic highs,” said Chris Pickett, chief strategy officer for Coyote. “We believe 2020 has the potential to create very similar challenges for shippers.”
In a recent webinar on the truckload market, Pickett said contract rates are expected to fall by the end of 2019 and decline as much as 5% in 2020. He also noted concerns with regard to the financial health of carriers as rates fall, capacity rises and operating costs remain flat. Some carriers could leave the market or face a merger with another company.
“This year, we’ve seen a complete 180 from the market, leading to difficult times for many carriers who may have overshot their truck orders and plans based on the previous year’s more favorable economic conditions,” he said.
Orders of Class 8 trucks, the largest class, rose 6% to 10,900 trucks in August, from July, according to ACT Research. But orders were down 79% in August, from the same month in 2018.
“Weak freight market and rate conditions and a still-large Class 8 backlog continue to bedevil new Class 8 order traffic,” said Kenny Vieth, president and senior analyst for ACT. “Though, with OEMs opening their new model-year order books, order weakness is increasingly the story of an overcapacitized Class 8 fleet, as truckers start to make their plans for 2020. August is typically a weak order month.”