Loaded and Rolling: Congress debates age-old question; Class 8 orders’ December finish

Cass says freight costs fell in December

Thomas Wasson

2 years ago

Congress debates age-old question

A Republican-backed bill introduced by U.S. Rep Brian Mast, R-Fla., seeks to exempt underage truck drivers from rules that prohibit them from hauling containers to and from marine terminals.

FreightWaves’ John Gallagher wrote, “[U]nder current law, picking up containers and other cargo from a marine terminal is interpreted as interstate trucking even if the port is located in the same state as a driver’s final destination, such as a distribution center.”

For some states, intrastate driving is allowable for CDL holders under 21 years of age, and for port movements this can cause unforeseen complications in a state like Florida. In a blog post Mast noted, “that means a 20-year-old with a commercial driver’s license could not pick up a shipment at the Port of Palm Beach and deliver it to a destination in Stuart [approximately 40 miles], but that same driver could transport cargo from Tallahassee all the way to Miami [approximately 500 miles].”

I think drayage moves are an interesting angle for testing the under-21 driver exemption. Given certain states and the substantial distances between points within them, the Federal Motor Carrier Safety Administration could collect valuable data on driver performance by age before attempting to address nationwide requests for exemptions on interstate driving from rules that currently prohibit those CDL holders from hauling across state lines.

Class 8 orders’ December finish

On Tuesday, ACT Research released data on December orders for Class 8 trucks. The report noted that Class 8 orders came in at 30,600, lower compared to the past three months but a strong performance, with year-end activity totaling 159,000 orders.

“For now, business activity in the truck industry rolls on, also seemingly [unfazed] by higher interest rates, as pent-up demand remains for now,” said Eric Crawford, ACT Research vice president, senior analyst. “We expect this dynamic to shift in 2H’23, as the Fed continues its aggressive push to subdue inflation. Although there have been recent signs of inflation slowing, we do not expect the Fed to begin cutting rates in 2023.”

This pent-up demand appears to be translating into strong retail sales. Crawford added that December retail sales data rose 19% year over year to a record 34,415 units.

Movements by the Federal Reserve on interest rates are expected to continue to impact trucking companies that rely on revolving credit lines and may impact financing costs for capital expenditures. Higher borrowing costs will degrade margins, which are facing headwinds from lower rates and higher operating costs.

Market update: Cass says freight costs fell in December

Total freight costs declined for the first time in 28 months, according to a recent Cass Freight Index report by Cass Information Systems. The 4% year-over-year decline in December comes off a 4.7% y/y increase in November.

These declines in expenditures are having an impact on rate predictions. The report notes: “Freight rates are on track to fall 5% in 2023 just based on the normal seasonal pattern of this index. With loose market conditions and some welcome relief in diesel prices, the actual decline is likely to be a good bit larger.”

Regarding the freight outlook for carriers, analysts are mostly upbeat. FreightWaves’ Todd Maiden writes: “However, most are pointing to firming fundamentals for carriers by midyear, resulting in a potential upcycle in the back half. The thesis is that persistent cost pressures on carriers, and regulatory impediments to capacity like AB5, will result in a steady exodus of operators, removing downward pressure on rates. Further, the weakness in demand and pricing evident in the third quarter appears to have accelerated during the fourth quarter, creating easier y/y comps for the group later this year.”

What remains to be seen is what the new seasonality will be, as the boom/bust freight business cycle, common before the pandemic, resumes in earnest.

FreightWaves SONAR spotlight: Spot-to-contract spread narrows

Summary: The spot-to-contract rate spread, a measurement in the difference between FreightWaves’ National Truckload Index (NTI) and the Van Contract Rate Per Mile Initial Report Index (VCRPM1) is narrowing on the heels of a new RFP season. This difference is impacted by a 14-day lag in contract rates. The spread as of Jan. 1 was 57 cents per mile, a notable movement from the 82-cent-per-mile average recorded from mid-November through mid-December 2022.

This pricing movement toward spot and contract rate parity suggests further concessions in contract rates as shippers push for greater savings at the expense of carrier and broker margins. For trucking companies, the strategy remains to push for greater truckload utilization and higher revenue miles to offset the declines in contract rates. From a network optimization standpoint, this involves evaluating customer mixes and reducing deadhead, identifying underperforming trailer pools, and pushing for higher load tender compliance rates.
Tim Denoyer, ACT Research vice president and senior analyst, noted in a report using a similar contract-to-spot data set, “Slowing supply is key for the US truckload market to transition from the late-cycle stage experienced in 2022 to the cycle-bottom phase which features a thinning of marginal capacity amid lower rates, preceding an early-cycle market tightening.” Denoyer added, “Because rates are now far below costs in some cases, the market may experience both the cycle-bottom and early-cycle phases in 2023.”