U.S. Spot Market Forecast
Our 2024 dry van linehaul cost forecast has been cut from -2% to -5% change y/y. Several underlying factors to both supply and demand influence our changes to the forecast. From a supply side, we continue to be in a drawn-out stage of oversupply. In our Robinson Report from October of last year, we discussed the two predominant root factors causing this:
Eight months later we look back and reflect on this today. Robust small carrier balance sheets allowed for many carriers to pay off their equipment loans, which account for a significant monthly overhead cost. With a now lowered cost structure, these carriers are now able to operate beneath the average breakeven cost/mile. There are still many challenges at operating on such thin margins, for example, a truck breakdown could put them beyond the point of recuperation. We are seeing carrier attrition occur from the small carriers this year, but just at a slow pace. And as we mentioned in last month’s report, produce season has allowed for a slowing of this attrition as regional demand is more abundant and at higher rates. The largest carriers tend to have more diversification within their business and are less reliant on the volatile spot market.
While we are seeing class-8 production/sales soften a bit, they still remain higher than expected. Large-sized (and many mid-sized) carriers are typically the ones that purchase new class-8 vehicles. These carriers are continuing to buy tractors despite the soft market, as both a way to increase driver retention and to keep fleets young. The decrease in fleet age not only helps reduce maintenance costs and decrease emissions, it also allows for a phased in approach whenever the EPA mandates go into effect in 2027. These purchases are helping to keep elevated amounts of trucks on the road and keeping supply at a high level, despite rather modest demand.
Produce season continues to put upward pressure on spot rates and will likely do so through the July 4th holiday. This varies regionally, but the points further south such as Southern Florida and U.S.-Mexico border crossings around Texas and New Mexico are starting to see some alleviation of rates from their peak. As peak produce season continues to push north, we are still seeing increased rates out of the mid-Southeast like Georgia and the Carolinas as well as the Southwest out of California and Arizona. Overall, we expect that the nationwide cost/mile will peak the week of Independence Day and lag in the week after. Since July 4th is on a Thursday there are likely a lot of shippers (and carriers) that will be taking Friday the 5th off work and trying to “make up” for the loss of two-days’ worth of shipping by catching up and increasing shipping the following week.
Our 2024 refrigerated linehaul forecast similarly has been cut from last month. The 2024 temperature-controlled forecast is at -3% y/y compared to the previously stated -1%.
Contract truckload environment
Contract trucking strategies and agreements are characterized by freight and lanes with reasonably predictable demand patterns, whereas spot truckload services are typically utilized for lanes with low volume, irregular demand patterns, or poor economic trade corridors. Transportation budgets are shaped by modeling the plannable and unplannable “freight baskets” in a shipper's portfolio, as well as accounting for some level of under-performance in the strategy.
The contractual landscape has remained relatively unchanged in recent months. Q2 is a relatively quiet quarter for RFP activity, but there are still annual RFPs and mini bids that occur at all times of the year. Since most of the bid activity occurs in Q4 and Q1, the second quarter typically sees these routing guides in full operational effect. As discussed in the lead story above, summer disruptions can be impactful to freight. Much of this disruption is heavily impactful in the spot market, but what about the contractual market? It’s understandable that supply and demand dynamics in a particular region could drive spot market costs up due to a hurricane, but if you have freight contracted shouldn’t you be insulated from pricing and truck availability dynamics of the spot market since providers agreed to move your freight in a given lane? Could a hurricane impact capacity in the contractual market? In short, the answer to these questions is ‘yes, but not to the extent of the spot market’.
In our 2022 academic research analysis with MIT’s Center for Transportation and Logistics we uncovered that the volume distribution did change a small amount during the immediate timeframe following hurricanes. This varied based on a few factors, the two largest of which were the overall impact of the storm as well as the volume of freight in the given lane (high or low volume). For example, Hurricane Harvey (2017, Southeast Texas) saw the largest impact compared to the other hurricanes studied. Low volume lanes also saw a larger impact versus high volume lanes with low volume contractual lanes seeing a decrease of volume accepted by the primary provider immediately following Hurricane Harvey. . The percentage of loads accepted by the primary provider decreased by 8 percentage points, and the majority of this freight falling through the routing guide and ultimately ending up in the spot market.
The reason for this decrease in acceptance is not due to providers intentionally rejecting a contractual load in favor of a high-priced spot load, but rather due to disruptions in the supply chain resulting in different positioning of assets against plan. For example, this means that due to the storm in Houston, a carrier may not have been able to take their prior load from Dallas to Houston and thus does not have that truck available for the contractual load out of Houston. As a result, the shipper had to either go deeper into their routing guide (which typically incurs more costs than the primary) or source a truck from the spot market. For the small percentage of freight that did have to fall to and/or through the routing guide, rates increased by about 8%. If you recall the chart in the lead story, spot costs increased by around 30% in the similar situation for the spot market.
While disruptions such as hurricanes can be impactful to contractual freight, the impacts are mostly felt on sparse lanes and during the most severe storms. Performing to the initial plan is something that is advantageous to all parties involved, so having a plan in place for these disruptions will greatly improve your ability to navigate the challenges at hand and minimize interruptions to your supply chain. Having a contingency plan will also assist in staying on track to budget. Talk to your C.H. Robinson account team about how they can help you create a plan to manage through known events such as holidays and unforeseen events such as hurricanes.
Voice of the carrier from C.H. Robinson
C.H. Robinson has two customer communities, shipper customers and carrier customers. What follows are aggregated insights from conversations with carriers of all sizes to offer perspective into their top concerns over the past month.
Market insights
- RFP/bid activity has been decreasing recently, which is seasonally expected, although it remains slightly elevated compared to normal
- The spot market remains challenging to be profitable
- Carrier consensus is that we have hit the bottom of the market with no further down to go
- Carriers are still focusing on and prioritizing relationships and providing good service at fair rates
Equipment
- Used equipment resale value continues to fall. This drop in price negatively impacts some fleets’ ability to keep newer equipment on the road, as they aren’t able to get a large enough return on their used equipment and instead keep their equipment longer.
- Some carriers have reported used trailer costs at nearly half the price they were in 2020
- New equipment costs are dropping as well. Manufacturers are offering free months on leased trailers, for example, based on the lease length.
- Truck parts, tires, oil, and general mechanic labor continue to increase in cost and cut into any margin expansion within carrier operating income
Drivers
- Driver recruiting remains a huge expense, as driver turnover still requires hiring, despite the soft market
- Team drivers: one area of focus for some recruiting strategies is the ability to attract team drivers
A key value proposition of C.H. Robinson to our contract carriers is aggregating lane volume and demand pattern variability from our vast shipper network. This provides our carriers with more predictable volume from C.H. Robinson and as a result are interested in and able to offer consistent capacity and market pricing with high performance. Engage your account teams for more information on how to leverage our scale.
Refrigerated truckload
Produce season continues as growing season is in full swing. While non-produce impacted origins remain soft, California and the Southeast have seen the largest tightening in capacity. We have likely seen the peak of this season at the Mexico-U.S. border. To ensure coverage and the best rates and service, work with your account team to provide visibility to supply chain needs so they can build the proper lead time and flexibility into the loads. For more details on geographies and locations, please reference the map within our last month’s report.
East Coast – The Northeast remains soft, even with shorter than average lead time. Southeast produce season has begun in addition to Miamibeing the Mother’s Day floral hub that drives the holiday. Capacity is being drawn into these origin points in the Southeast and we expect that to continue through May and into June.
East Coast: The Northeast continues to remain soft, even with shorter than average lead time. Southeast produce season continues to creep north. Southern and Central Florida are largely past peak season, but outbound Northern Florida and through Georgia will continue to see constraints through June.
Central U.S.:Capacity markets through the Mid-North should remain soft through June and into mid-July. Short lead time and same day coverage may provide some difficulties within the central states where there is a lot of protein production, as peak grilling season approaches. We expect the final produce push to occur leading up to the July 4th holiday.
West Coast: Pacific Northwest cherry season has begun, but that has been mostly manageable given the softness leading up to it. Berries and various vegetables are now shipping heavily out of central and northern California. Southern California and Arizona are still experiencing high volumes that likely won’t taper down until July.
Work with your C.H. Robinson team to stay informed on regionalized opportunities and how to best schedule freight to capitalize on the best price and service.
Flatbed truckload
Flatbed is in the second half of its typical peak season but demand constraints continue within the broader market, although there is some variability at the local level. Supply in the marketplace is willing to move to regions and/or shippers where they can offer project or consistent lanes to drivers. These supply and demand trends have led to relatively stable rates this year but still slightly lower overall versus last year.
Safety for drivers while loading/unloading becomes a large priority in the summer with the risk of heat exhaustion/fatigue, especially in warm climates. A few degrees of temperature change increases the risk of mistakes significantly. Shipping facilities that offer drinks, shade, and a place to rest are appreciated by the driver community. As storm season approaches, flatbed demand usually comes in preparation of storms (sandbags, lumber) and then later after initial recovery efforts and assessment of damages. Flatbed demand in storm-affected areas focuses on rebuilding infrastructure (power and utilities) and then a second wave of building construction materials. Partner with C.H. Robinson in the pre-planning and assessment phase of recovery to best service those rushes of demand.
This helped me
