While the U.S. freight market has always continued to sail forward at a steady pace, the real story is that the winds of change are always shifting, continually driving markets for carriers and shippers in different directions.
Today, those shifts are even more pronounced. Since the pandemic began, the ebb and flow of freight, like the strength of the tides after a storm, has been less predictable.
Through much of 2019, freight markets were still on a steady course. Since then, the economic headwinds of inflation and ongoing supply chain challenges have been causing wider fluctuations in freight capacity, and in turn in contract and spot market rates.
The Interconnectivity of Contract and Spot Market Rates
The two types of freight rates are interconnected with changes in one affecting the other. While contract rates make up between 70-80% of the market, they are influenced by spot rates, which can change with demand for carrying capacity at any point in time.
For example, when the COVID-19 outbreak started, consumer spending dropped drastically, leading to a significant reduction in freight demand. The large amount of newly available capacity then pushed down spot rates. Eventually, as demand for goods ramped up and less capacity was available, spot market rates quickly rose to new record highs.
That trend continued as spot rates climbed; then they plateaued and have since declined. FreightWaves, using data from TCA, ACT and its own analyses, has reported that since May of this year cost-adjusted trucking spot rates have matched 2019, dropping $0.21/mile. Additionally, the downward trend is likely to continue because May typically has the highest spot rates of the year and July and August the lowest.
Meanwhile, the resurgence in contract rates that began slowly in 2021 has continued. From March through December of that year, demand soared and motor carriers realized contract rate increases of 15.7%.
Freight Market Ups and Downs Continue into 2022
This year, the ups and down continue, driven as always by freight volumes and available capacity. In May, according to the ATA For-Hire Truck Tonnage Index, freight volume rose 3.7% compared to one year earlier. That was 1.4% higher than in April and during the first five months of 2022 tonnage was up 2.7%.
The result, summed up in a headline on FreightWaves: Spot rates spiraling down to 16-month lows, but contract rates at all-time highs. Its analysis included that since the beginning of the year contract rates have increased by nearly 6%. But at the same time, rejection rates have plummeted since the beginning of March, indicating that “the spot market that once presented fruitful opportunities for carriers is starting to dry up.”
Those conclusions are supported by data from DAT. By late June, the DAT RateView database was indicating decreases in the national average linehaul spot rates for dry van, reefer and flatbed freight.
The average rate to move dry van freight on the spot market dipped below $2 per mile excluding fuel surcharges for the first time since July 2020, DAT reported recently. Simultaneously, prices paid by shippers to move contracted freight hit record highs in May when dry van, reefer and flatbed rates all jumped.
“The traditional spot market has slowed as freight softens, but contract carriers are backfilling any losses in freight with loads from shippers that are reducing spot market exposure,” said ATA Chief Economist Bob Costello. “Essentially the market is transitioning back to pre-pandemic shares of contract versus spot market.”
And yet there is still more evidence that the only thing carriers and shippers can count on is continued change. As FreightWaves noted, “Given that the second quarter of 2022 is nearing its end, we can expect to see renegotiations in the weeks to come. These renegotiations will heavily favor shippers; as a result, contract rates should come down from their current highs.”
Navigating the continually changing nature of freight volumes and rates requires balance and an ability to effectively take advantage of short and longer term opportunities. In today’s highly connected supply chain, being able to do so more quickly than ever before is a competitive advantage and a key to profitability.
How Trimble Technology Transforms Freight Procurement
One of the solutions that is designed specifically to transform the freight procurement process is the Trimble Engage Lane transportation procurement platform. Its unique value is that it enables shippers and carriers to collectively find the best way to move freight.
With Engage Lane, shippers and carriers can establish relationships based on their needs and priorities, expedite contracting, onboarding and transactional processes, and quickly make decisions that lead to more cost-effective use of capacity.
While the shifts in the freight market always bear watching, to successfully ride the winds of change it takes a new and innovative approach.