Truck capacity limited, spot rates up nearly 50% heading into holiday shipping season

Holiday shipping season, or peak season, has contributed to tighter capacity and rising rates, but capacity and rates were already at elevated levels leading into the season amid the COVID-19 pandemic.

Dean Croke, principal analyst for DAT iQ, the freight data and analytics operation for DAT Freight & Analytics, expects winners and losers in the holiday shipping season this year. DAT operates an online marketplace for spot truckload freight.

Croke expects e-commerce to be strong but brick-and-mortar stores to struggle. He noted industrial freight is down while retail freight is up. He cited strength in the following sectors: consumer packaged goods, do-it-yourself and electronics, including TVs, vacuums and bread machines. The increased e-commerce freight will put final mile shipping in peak demand.

Imports to stock warehouses in preparation for the season reached a peak in August and have since tapered off, Croke said. A lot of freight from Asia has been shipped and loaded in warehouses.

“If I could sum it up, this holiday season is being pulled forward a couple of months to the point where you’ll start seeing a lot of Black Friday type deals,” Croke said, adding that the deals will start in the second week of October and much sooner than they’ve ever been before. Amazon is hosting its Prime Day Oct. 13-14, which was delayed from July because of the pandemic.

Several big-box retailers plan to close their stores on Thanksgiving, and to boost sales, they are increasing buy online and pick up in-store or ship from store directly to customer, Croke said. Retailers are spreading out their sales over an entire quarter instead of focusing on specific days, he added.

Amid the pandemic, shoppers will be hesitant to go into crowded stores, and he expects more people to buy online and pick up at stores.  Consumers also are shopping earlier to avoid shortages customers experienced in spring at the start of the pandemic. And, they are starting to shop earlier as a result of fears of a second wave of the virus, he said.

The holiday shipping season is expected to continue through the end of the year and might extend into 2021 as shippers restock depleted inventory. He expects the strong freight demand to put pressure on spot and contract rates.

Dry-van spot rates have risen for 21 consecutive weeks and are nearly 45% higher than at the same time in 2019, according to DAT. In September, the rates hit a record high of $2.37 per mile.

However, Croke doesn’t expect spot rates to rise much more amid tight freight capacity. He explained carriers expanded capacity when freight demand rose in 2018, but they aren’t doing so this year. The industry had too much capacity in 2019, and rates declined. Economic uncertainty and the pandemic have kept carriers from adding capacity so far this year, he said.

“There are so many unknown factors, and I think that’s why some of the larger fleets are hesitant to add more trucks into the market because they don’t know what the start of the New Year is going to look like,” he said.

The tight capacity can be attributed to the pandemic amid a shipper freight surge, affecting supply chain routes and leading carriers to change shipping patterns. Limited capacity has led shippers to the spot market to ship freight, and the rising demand for spot freight contributed to the rise in the rates. Carriers have met demand for existing contract freight but were unable to handle the freight surge, Croke said, adding that this is why spot market rates are up nearly 50% from the same time in 2019. Total freight volumes aren’t up, he noted, but shipments jumped for some commodities and truck lanes.

“The old adage, ‘Trucks aren’t where the loads are,’ applies even more so now because trucks are less likely to be where the loads are now because they’re running more empty miles and they’re spending longer on loading docks to get unloaded,” he said. “There’s a tendency to move light loads to drop trailers, creating a backlog of equipment through networks.

“When you’ve got a massive influx of e-commerce freight on a loading dock on the inbound side, you’ve got a big back up of trailers. The trailer people are telling us they’ve never had a higher utilization level of their trailers because they are both in demand and being used as on-site storage as they try to process this surge in demand.”

Bob Costello, chief economist at American Trucking Associations, recently told Transport Topics that capacity in the trucking industry is as tight as it has been in years.

“Parts of trucking are doing very well,” he said. “On the supply side, there are a number of factors that have come together that each of them on their own would not have caused a tight capacity situation, but taken together they are causing things to tighten.”

Some trucking companies closed at the start of the pandemic, and those that continue to operate are likely running with fewer trucks, according to Costello.

“The spot markets are very strong because there is a lot of spillover freight,” he added. “Contact freight is up, but I think capacity has a much bigger impact on this issue.”

The Logistics Managers’ Index rose to 70.5% in September, its first reading above 70% since October 2018. The rise can be attributed to the tight capacity in transportation and warehousing as demand for logistics services rose before the fourth quarter. The tight capacity has led to increases in price and use, with transportation prices up to a two-year high.

“E-commerce is expected to be at record-high levels during the holidays and retailers are restocking their inventories, especially those coming from international suppliers that had seen difficulty making regular deliveries early on during lockdown,” according to the report for the index. “Logistics services are in higher demand as consumers rely more heavily on e-commerce due to the COVID-19 pandemic. The growth has been significant, with e-commerce up 44% as a percentage of total retail in the U.S.”