Market Overview

Volumes Surge, Carriers Break Even And Seek Help From Tech

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Volumes Surge, Carriers Break Even And Seek Help From Tech

Make no mistake – freight volumes are on the rise, but the movement of goods appears to be rooted in warehouse and inventory redistribution instead of a consumer-facing activity. Rates are therefore still suppressed, and capacity remains loose. To improve their operations, carriers are accepting almost all contracted loads, optimizing hours of service, and fully utilizing their telematic technology to decrease dwell times. 

While the southern California freight market has been a pivotal force in economic recovery over the past month, smaller markets have come alive this week with concentrated growth. These markets include Detroit, Michigan; Albuquerque, New Mexico; Wilmington, North Carolina; and El Paso, Texas. 

The El Paso market shows increasing volumes and tender rejections, since there's ongoing cross-border activity there, and a good portion of it is long-haul freight from the automotive industry. In Detroit, automotive production similarly plays a role in its recent activity.

Across the industry, many wonder if volume growth is evidence of a stabilizing economy or possibly an outcome of the Paycheck Protection Program (PPP) loans. 

"The impact of restarting production tends to boost volumes in the short-term regardless of demand," said Zach Strickland, director of freight market intelligence at FreightWaves. "A similar pattern was observed last year after the General Motors strike was resolved in the automotive sector."

This past week on FreightWaves NOW, Strickland presented SONAR's Operating Ratio (OR) chart. The data from this chart (below) comes from the Truckload Carriers Association (TCA) and measures how a carrier operates relative to its sales revenue. This chart is broken down by modes – flatbed in orange, dry van in blue and reefer in green. 

The operating ratio is the quotient of expenses divided by revenue, so if a carrier's OR is 100, it means it is spending $1 to generate $1; breaking even on its operation. If a carrier moves above 100, it is actually moving further away from profitability. Reefer continues to be the most profitable mode at the moment, with dry van in the middle and flatbed at the bottom.

"Reefer has been more insulated from impact due to the food and beverage sector remaining active throughout the economic shutdown," said Strickland.  "In Florida and California, it's produce season, which is not mitigated by the pandemic."

In May, flatbed carriers sit at 103, while both the dry van and reefer score around 100. These low OR's are evidence of the prolonged rate suppression, Strickland said. During the panic-buying demand surge in March, almost all carriers were profitable, but when April came, flatbed carriers especially began to struggle. 

Looking at historical trends over the past three years, today's volume growth is a curious development, since in the past high-volumes generate higher tender rejection rates. 

"This could be the result of such a slow April, where volumes plummeted 10-15% below normal ranges," said Strickland.

From the SONAR Outbound Tender Rejection (OTRI) chart, which directly correlates with carrier profitability, the blue line representing 2020 reveals the current soft market and loose capacity of a 5.79% ratio. The green line representing 2018 reflects an active spot market and the OTRI soared to 24.21%.

Telematics companies like Powerfleet are keenly aware of the hardships that face carriers in light of COVID-19. Daniel Romary, vice president of data analytics and business intelligence at Powerfleet, has been using image processing and machine learning to study carrier activity week-over-week and day-over-day. 

"We have a camera system in the back of our trailers and my team goes through to classify and characterize the images of loads to see to what percentage the asset is loaded," said Romary. "Based on our observation of seeing the ceiling and wall, we can say it's about half-loaded."

By aggregating this data, Romary's team can optimize customers' return on investment and provide opportunities to save money. These images can also help with cargo claims and speeding up the unloading process, according to Norm Thomas, a senior executive of industry relations at Powerfleet. 

"The most critical commodity we trade-in with drivers today is hours, because of the mandated ELD [electronic logging device] changes," said Thomas. "Optimizing the total availability to drive is critical. One of the ways to do that is to speed up the loading and unloading process. We know how the commodity was loaded and what it takes to unload it. At a certain point in the trip, you can give advance notice to the delivery point that the trailer is in-bound, has been hand-stacked, and will need pallets and a certified forklift driver. If you have all that on-hand when the driver arrives, you're going to unload that truck faster and therefore get the driver back on the road faster."

 

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