June Freight Could Set the Tone for Rest of Year

By Mark Montague, DAT Solutions

It's no secret that truckload rates aren't where they were a year ago. We don't expect prices to reach the same levels we saw in 2019, but we've been predicting a second quarter rebound for quite some time now – really since last December, when we also said that we expected the first quarter to be even softer than usual. A number of factors delayed that Q2 rebound, but now it's finally here.

The first reason for delay was the widespread flooding and bad weather in the Midwest. That affected cross-country traffic and many produce harvests. Then the increased tariffs on Chinese imports were announced in mid-May, triggering a slowdown on freight movements from the West Coast until businesses could reassess plans.

Even with those disruptions, volumes haven't been bad this year, but now they are ramping up in earnest. The incremental change includes seasonal shipments associated with warmer weather, as well as stored goods moving into the supply chain from the West Coast. By now, bonded warehouses are being emptied to avoid increased levies. We can expect to see elevated activity from now until early July.

When West Coast goods move in higher quantities by truck, it tightens the truck supply because of the higher cycle time for a truck to complete a long-haul roundtrip. In effect, an increase in demand on the West Coast will remove capacity that might otherwise compete for loads in the eastern half of the country.

The flipside is that there's a risk that the summer doldrums (July, August) could be worse than usual with the constrained volumes of international trade. Lower oil prices could be another factor. While flatbed activity picked up in late May, current oil prices are bearish. Lower prices could lead to a slowdown in energy projects, which in turn leads to softer demand for flatbed equipment.

Sustained Growth or Summertime Blues?

And while we are starting to see higher quantities of summer produce, trend data from both the USDA and from DAT's RateView database suggest this is likely to be a sub-par year for produce shipments. The season could still turn around within a few weeks if growing conditions are favorable, however. If harvests improve, that will also have a ripple effect across other segments of the supply chain. Van freight is affected strongly because idle reefers will compete for van loads. That's just one way in which the supply chain is an ecosystem where everything is connected: van, flatbed, refrigerated, and intermodal.

In the short term, Los Angeles, Northern California, and Atlanta have been producing much more freight in the last 30 days, with rising load-to-truck ratios and, more recently, rising prices. If this trend continues, shippers might postpone any demands for contract rate cuts.

Capacity may tighten in the fall, if some of the new entrants to the spot market start to exit. Last year’s high rates attracted owner-operators to go independent with their own authority, but this year’s market conditions may lead them to lease on with larger fleets or to leave the industry altogether.

Then there's one other X-factor: The AOBRD exception to the ELD mandate will end in December. If the transition from the older-style devices proves to be even half as challenging as the initial ELD rule, capacity could tighten up again in the first quarter of 2020.