Demand for Freight Drives Up Spot Market Rates: Trucking has observed a turnaround bolstered by spot market rates and increased demand.
“This has been a very fast-evolving environment,” said Avery Vise, FTR vice president of trucking research. “So if you go back to the April and even May time frame, we saw a fairly significant decline in rates in the spot market. You don’t tend to see contract rates change that quickly.”
“There are definitely strong upwards trends in both demand and rates,” Nick Wynkoop, product manager for rates and analytics at Truckstop.com, told Transport Topics. “Usually in past Junes, we’ve had yearly peaks in spot markets. That’s usually the highest month. This year, instead of dropping off for July and August, we have continued the upward trend for spot freight.”
The dry van segment weekly report had the most significant year-over-year spot rate increase at 35% for the week ended Aug. 7. The refrigerated segment followed at 27%. The flatbed segment was up 12%.
“We’re talking about levels similar to the increases we saw in the peak in 2018, [when results were up 16%],” Vise said. “But there are differences that are important. One is, we have a demand-driven response here that is combined with capacity. Both are setting the stage for this.”
Spot market rates apply to shipments that need to be move instantly. Contract rates are the price also agreed upon to move a type of shipment over a certain amount of time.
“We’ve seen a pretty dramatic firming of the rate environment,” Vise said. “If you look back to mid-April, we were down on the order of 25% year-over-year in spot rates. At this point, total spot rates are up about 17%.”
“States are reopening at different rates and are being hit by the virus at different times. This is leading to unseasonal peaks and valleys in manufacturing output and consumer demand,” Ken Adamo, DAT chief of analytics, said Aug. 13.
“Carrier networks are out of balance due to inconsistent freight demand at a commodity and lane level, and this is leading to a spike in demand for spot freight in order to meet the capacity need,” he added.
The volumes in July were up less than 1% month-over-month. The load-to-truck ratio was 7.4, four times higher than April’s all-time low of 1.7 loads per truck. The rate was $2.30 per mile, up 15 cents compared with June, and 11 cents higher year-over-year.
“With COVID, supply and demand have been all over the place,” said Kevin Zweier, vice president of transportation at Chainalytics. “Demand for shipments were down when we were in March, April, and May, and then it started coming back in June, July, and August. That’s where we’ve been seeing the rise in spot rates.”
Trucking companies have had to adapt to demand shifting considerably in favor of retail since more people have been staying in instead of going out to restaurants and bars.
“All of these things are adding up,” Adamo said. “Spot rates are up. At their lowest, they may be $1.35 in April when we saw all the restaurants were closed and people weren’t going out. And now we’re seeing rates bumping up if not exceeding $2 a mile for the spot market. That’s just tremendous. Unprecedented levels of rate increases.”
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