August Market Update
Analyzing the fluctuations in truckload rates and capacity
If you have been close to the truckload market over the last several years, you know that it has been marked by extreme volatility. Natural disasters, government regulations, wavering consumer confidence, geopolitical forces and a global pandemic have all impacted the cost of transportation. Analyzing the fluctuation in truckload rates is one of the best ways to gain a historical perspective on market volatility. And one of the best ways to evaluate these rates is through the Producer Price Index (PPI) for general freight trucking.
The PPI, published by the Bureau of Labor Statistics (BLS), is one of the most widely used measures of price changes for the transportation sector. These are the prices charged by producers of transportation services. The PPI for a mode of transportation measures the average change in the selling prices received by producers. For example, the rail producer price index is based on a survey of railroad prices charged to shippers. The PPI for trucking services measures the average change over time in the selling price for trucking services.
The line in the following chart illustrates the month-to-month fluctuation in the PPI for long-haul freight. For many, this line represents a roller-coaster of challenges and opportunities. The labeled callouts represent only a handful of critical events. No doubt, there are hundreds of other factors that impacted rates over the last several years.
Hurricane Harvey: On August 25, 2017, Hurricane Harvey made landfall in Texas and disrupted one of the largest freight markets in the United States: Houston, Texas. This event had a significant impact on spot market rates.
ELD Mandate: On December 17, 2017, all commercial vehicles were required to utilize Electronic Logging Devices (ELD). These devices are designed to prevent hours-of-service violations by commercial drivers. This mandate reduced the amount of available capacity and drove up prices.
Tariffs: As the Trump administration escalated its trade war with China, many importers rushed to get their goods stateside before the tariffs went into full effect. The result was an influx of freight that strained capacity and sent rates soaring.
Various: The peak in the fourth quarter of 2019 appears to be the result of multiple market events converging. Strong consumer confidence fueled a robust peak season. This fact, coupled with capacity constraining events like further enforcement actions tied to the ELD mandate, drove rates skyward.
COVID-19: The panic buying phase of the pandemic was quickly followed by widespread shutdowns and shelter-in-place orders that drove down freight volumes and prices. Stimulus measures by the Federal Government helped to bolster the economy. Significant increases in consumer spending increased both volumes and rates.
Polar Vortex: In February of this year, severe winter storms impacted a large percentage of the United States. These storms resulted in depleted inventory levels nationwide. As the nation thawed, demand for truckload services increased.
Various: Over the past few months, the market has been defined by constrained capacity, low inventories, increased spending and a booming manufacturing industry. Last month’s update describes these factors in detail.
At each twist and turn, shippers needed to understand the market dynamics and respond accordingly. For many, the last several years have been challenging to navigate. But it appears that there might be some relief in sight for shippers. The PPI showed two months of sequential decline in June and July. The Cass Truckload Linehaul Index®, another key measure of truckload pricing, also showed two months of sequential decline in June and July after eleven straight increases. As we enter peak season, it is too soon to say that the market has plateaued. We will explore more recent trends and factors in next month’s update.