As the equity indexes declined on Tuesday, two freight indexes contained in SONAR were up sharply after incorporating data from the past week: the national dry van and reefer spot indexes. That prompts the question: What happened to the freight market in the past week? In today’s The Stockout newsletter, I discuss how that data should be interpreted in the context of International Roadcheck Week. 

Truckload spot rates surged in the past week. In data that was just updated in SONAR for the past week, national dry van rates increased 5.9% from $3.05/mile to $3.23/mile, while reefer spot rates increased 10.9% from $3.39/mile to $3.76/mile. All quotes include fuel surcharges and accessorials. For both indexes, the latest quotes represented the highest levels since early March. For comparison to prior years, the current national dry van spot rate is 98% higher when compared to the year-ago level (a weak period for transportation demand before the market tightened later in the year) and is 52% higher than this time in 2019. Similarly, relative to the second week of May in 2020 and 2019, national reefer spot rates are currently higher by 107% and 57%, respectively. spot rates for dry van and reefer capacity are shown in blue and purple, respectively. (Source: SONAR)To learn more about FreightWaves SONAR, click here.

The timing of the 2021 International Roadcheck Week suggests that the latest surge may be temporary. FreightWaves has reported extensively on International Roadcheck Week, often from a carrier’s perspective. It is also important for CPG companies and other purchasers of transportation services to understand the impact in order to correctly interpret the latest transportation data. In short, International Roadcheck Week is a 72-hour period that took place from May 4-6, during which enforcement on trucking was stepped up. The dates were made public so carriers could put it on their calendars. 

The impact on the truck market is that some owner-operators and small carriers will choose to stay home to avoid being subject to the heightened road enforcement. Smaller carriers haul a disproportionately high volume of spot loads or loads that have been rejected by larger carriers. Therefore, small carriers and owner-operators often serve as the “surge capacity” in a tight market and spot rates, such as the spot rates shown in the chart above, represent market-clearing rates.

In contrast, larger fleets are much more tied to freight that is moved under contracts with large shippers. Fleets serving large shippers have more incentive to be on the road despite the higher enforcement to keep their major customers happy. And company drivers do not have the same discretion to take time off as owner-operators do. Plus, at risk of generalizing, larger carriers tend to utilize newer equipment and have stricter safety procedures in place (e.g., speed governors to prevent company drivers from speeding), so they are at less risk of incurring penalties. 

The SONAR chart below suggests that the recent spike in spot rates is temporary and we will see a reversal next week. Typically, spot rates align tightly with tender rejection rates and, as spot rates rise, carriers reject more loads to chase highly rated spot loads. But carriers didn’t reject a higher percentage of tendered loads in the past week from the prior week. That suggests that different segments of carriers responded to Roadcheck Week differently. For carriers that primarily participate in the contract market, it was business as usual, and for owner-operators, some likely stayed home while others enjoyed higher market-clearing spot rates.  

Reefer tender rejections (green) typically trend in line with reefer spot rates (blue). International Roadcheck Week has caused those datasets to move in different directions in the past week. (Source: SONAR) To learn more about FreightWaves SONAR, click here.

Freight markets remain tight as freight haulers enter one of the busiest times of the year. My discounting of last week’s spot rate increases should not be interpreted as a suggestion that the freight market is loosening in any meaningful way. In fact, we just finished an extraordinary April for freight demand, which is typically the “freight offseason,” or the second-slowest freight month of the year. Plus, freight typically picks up seasonally in May as consumers buy large, bulky items to prepare for summer. In the next few months, CPG companies and other shippers should expect freight markets to remain persistently tight due to demand from elevated import volumes, inventory replenishment, strong consumer demand and a recovering industrial economy. Meanwhile, capacity remains limited due to constraints on commercial vehicle components, manufacturing capacity and driver availability. 

On the back of elevated imports, 2021 U.S. intermodal container volume (blue) hit records in April, with volume similar to a strong fall peak season. (Source: SONAR) To learn more about FreightWaves SONAR, click here.

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