Freight Brokers Still Expect A Summer Turn-Up

Earlier this week FreightWaves published a comparison of four models forecasting spot rates in 2019. The consensus was that national freight markets would see a modest improvement in spot rates although year-over-year comparisons would remain negative through the rest of the year.

Freight brokers have largely confirmed those models, reporting that while volumes have been fairly flat so far this quarter, they're starting to see some upward pressure on rates and tightening capacity in some markets apart from the effects of International Roadcheck Week. Those expectations come despite recent reports by DAT and American Trucking Associations' (ATA) Chief Economist Bob Costello that freight activity in May disappointed.

The national tender rejection rate has ticked up about 72 basis points to 5.02 percent, but capacity is tighter in the Southeast, Midwest and north Florida regions, where agricultural harvests delayed by extreme precipitation are finally starting to hit freight markets. Carriers in Jacksonville are rejecting 10.58 percent of tendered loads (OTRI.JAX), while the Tifton, Georgia market has seen turndown rates climb to 12.1 percent (OTRI.TMA). Both of those numbers are being pulled up by tightness in refrigerated equipment – reefer loads outbound from Jacksonville are being rejected at a rate of 13.01 percent (RTRI.JAX) and in Tifton, that number is 15.5 percent (RTRI.TMA).

"The freight market feels like it's speeding up, which is typical for us this time of year," said William Kerr, president of Chicago-based Edge Logistics. "We see a huge impact in the market from food and beverage shippers, canned food, bottled beverages, alcoholic beverages, standard grocery and foodstuffs. Consumers tend to spend a lot of money in the summer."

Although FreightWaves reporters haven't spoken to any freight market participants who expect the animal spirits of 2017-18 to take hold in the spot market this summer, shippers and carriers are proactively working with freight brokers to plan for what should be the busiest time of year.

"June 10 is really the beginning of what we call broker season," Kerr said. "There's a lot of fluid spot freight in the market, a lot of shippers are looking to add capacity to their networks for the summer, and carriers are looking for committed deals to establish normalcy. It's an active deal time for us."

Dry van spot rates are bumping upward in dense lanes such as Atlanta to Philadelphia (DATVF.ATLPHL), Chicago to Atlanta (DATVF.CHIATL), and Los Angeles to Dallas (DATVF.LAXDAL). Rates from Philadelphia to Chicago are still depressed (DATVF.PHLCHI), but that should change once the market realizes that Chicago's freight flows are normalizing to a much weaker headhaul market than usual (HAUL.CHI).

(Chart: FreightWaves SONAR)

Kerr said that parts of the Midwest were unusually difficult to service and hitting appointment schedules was tricky during the last half of May due to flooding and damage to transportation infrastructure.

"In Arkansas, Oklahoma, north Texas from Dallas to Oklahoma City and Tulsa – that whole part of the country – now we're seeing a lot of orders," Kerr said. "All of a sudden, shippers have these lanes available."

Doug Starnes, director of operations at Indianapolis-based freight brokerage FitzMark, confirmed seeing upward movement in spot rates and a return to normal volumes.

"Volumes are probably back to what people are used to from last year and previously, compared to the last six months," Starnes said. "I still think Texas and the Southeast are a little tight with produce. The stuff we can always move, we can move, and on those one-off spot loads, you have to be more strategic when you're quoting them."

One sign of strengthening freight markets for FitzMark has been that the brokerage is getting more tenders on lanes where it isn't the primary carrier.

"In the current marketplace, if you're down in the routing guide you might have more visibility into lanes you didn't see a month or two ago," Starnes said. "We've seen a tightening of capacity, especially in the last two or three weeks."

One executive at a Chattanooga-based brokerage attached to a substantial fleet was more pessimistic about the balance of power in freight markets.

"Who has the gun?" he asked. "The shippers are still holding the gun," the broker said, pointing out that rates in backhaul markets are still being driven down, and shippers are pulling freight from awarded contracts without warning because they've found growth-minded brokers willing to move it for lower rates.

The Chattanooga broker said that many fleets are over-leveraged from buying trucks last year, and "the rubber band is going to snap again. Ain't nobody buying trucks now. You're going to see small carriers go out of business."

That was not the first time FreightWaves has heard (and reported) that capacity is past peak and is now on its way back out of the market – industry watchers from Morgan Stanley to Coyote Logistics project a tough environment for trucking carriers going forward. Earlier this week, on June 10, ATA's Costello issued a stark warning.

"I predict a large number of trucking companies will go out of business," Costello said.

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