FreightWaves Chart Of The Week: Spot Rates More Volatile In A Cooling Market

National spot rates have been more erratic over the past three months than the same time-frame last year. According to the DAT National Van Freight Rate Index, spot market rates average daily movement in 2017 was $0.034 per mile from Labor Day to Thanksgiving. In 2018 that value has climbed to $0.064 per mile, an 86 percent increase in average daily rate change. The DAT Van Freight Rate Index, developed for the purpose of creating the settlement values for the upcoming freight futures in March of 2019, is the average national rate per mile less fuel and other assessorial charges.

SONAR chart of the DAT Van Freight Rate Index over the past year and a half

The higher daily movement in rate per mile is an indication that all the main players in the freight market such as shippers, brokers, and carriers are more uncertain on how to judge the market conditions.

Freight market rates are driven by basic supply and demand. The supply component is commonly referred to as capacity in the industry terminology. It is this most basic economic principle is what tends to determine the rate variability throughout the year in the trucking spot market.

The core costs of operating a truck are the base component of determining the freight rate. Things like driver wages, maintenance, equipment, and insurance are built in to the rate as fixed costs. Some of these costs do not disappear if the truck does not move so in times of low demand some carriers will drop rates below these costs in order to not "lose as much".

In times of high demand carriers need to take advantage of the market to recover losses from the low demand period. They will move a portion of their capacity to the spot market. Most of our data suggests that June was a month of high demand and low supply. The DAT Van Freight Index hit $2.11 per mile on June 27, the highest rate all year. Since then the market has cooled significantly with the rates falling as low as 1.53 in the middle of October but bounced back up to 1.63 a few days later.

Truck transportation is one of the most fragmented, if not the most fragmented, in the U.S. Relatively low barriers to entry have made it easy for those who own equipment to enter the space rapidly. A side effect of this is with so many participants it makes it extremely difficult to get a clear view of how much supply, capacity, is available with any speed.

The demand side can be just as difficult to discern. Just about any industry in the country utilizes truck transportation throughout the year. Figuring out when and where these shipping surges is as difficult as predicting the weather. There are simply too many variables to isolate to make reliable forecasts.

The past year has made all market participants even more aware of this unpredictability. Like a kid that has touched the burner, many shippers have realized that the market can turn on a dime and the relatively stable period of time between 2010 and 2017 is probably a thing of the past. Rates have increased at the fastest pace in over a decade. Even when the market is cooling finding a consistent rate is still a challenge.