In channel checks, earnings calls and market data, FreightWaves is starting to see green shoots in the freight economy suggesting that the early stages of a recovery may be beginning.
The most salient data point is that national tendered volumes (OTVI.USA) are now trending above 2018 at an appreciable spread for the first time this year. With trucking capacity either exiting the market (at least seven sizeable failures of trucking carriers this year) or remaining flat (Echo Global Logistics says its time-to-cover loads has not increased), rising volumes should support higher trucking spot rates.
Volume growth appears to be fairly well-distributed, with significant week-over-week upticks in major markets across the country. Ontario, California is up 12 percent; Los Angeles is up 9.6 percent; Columbus, Ohio is up 7.9 percent; Dallas is up 5.2 percent; Elizabeth, New Jersey is up 3.7 percent; Harrisburg, Pennsylvania is up 2.1 percent; and Joliet, Illinois is up 1.7 percent.
Macroeconomic data from the retail side of the goods economy has retained its strength, with consumer confidence and personal income posting healthy numbers for the second quarter on July 30.
Yesterday, trades in the Trucking Freight Futures market on the Nodal Exchange bid up the price of October (DATVF.VLD201910) and November (DATVF.VLD201911) contracts for the Los Angeles to Dallas regional lane to $1.90 and $2.103 per mile, respectively. In effect, market participants are betting that spot rates out of Los Angeles (DATVF.LAXDAL) will see a significant fourth quarter pop, taking them well above the current level of $1.511/mile.
Responding to C.H. Robinson’s second quarter earnings results, Morgan Stanley analyst Ravi Shanker wrote that stabilizing and potentially strengthening spot rates could present a gross margin headwind for Robinson’s brokerage division, North American Surface Transportation.
“The gap between spot (buy) and contract (sell) rates is likely to close with spot rates looking like they are stabilizing (if not increasing) and contract rates for brokers coming in at [high single digit] if not [low single digit] declines,” Shanker wrote in a July 30 investor note.
Remember that brokers with a book of business biased toward ‘contract’ can see margin compression when spot rates – the brokers’ cost to buy trucking capacity – increase faster than paper rates, which only mark to market on a months-long lag.
It’s important to keep in mind that if in fact freight markets are shifting into recovery mode, publicly traded carriers won’t feel the effects for several quarters as their current customer agreements were negotiated in a soft freight environment exacerbated by a capacity glut.
Channel checks FreightWaves conducted today were interesting – every broker said that they were busier but that they didn’t perceive a lift across national markets.
William Kerr, president of Chicago-based Edge Logistics, said that Edge was having a record volume month but attributed it to more awarded freight from contract customers. Rush Feldhacker, vice president of sales and running Trident Transport’s Tampa branch, said that his shop “has gotten a little busier” but that he is not seeing a huge increase.
Jason Roberts, vice president of sales and marketing at Avenger Logistics, said Avenger has seen “a spike” in van volumes, albeit at lower prices, but so far not much action in flatbeds. Drew Johnson, chief executive officer at Axle Logistics, said “we have noticed an uptick and a slight rebound from the weaker-than- normal volumes in May and June,” but that it’s still too early to know whether it’s a trend.
Prologis told FreightWaves today, July 31, that its metrics call for moderating but strong growth in industrial real estate markets. The large real estate owner and developer expects 6 percent growth in rents compared to 8 percent last year and a vacancy rate of just 4.5 percent. Demand for warehouse space is on about a 250 million square foot run rate, Prologis vice president of research Melinda McLaughlin told FreightWaves.
National volumes are now above 2018 levels, but this is also the point when year-over-year comparisons get easier – there was a July lull in 2018, and perhaps a delayed summer peak this year. FreightWaves will keep monitoring supply and demand in the freight markets and keeping our readers abreast of this evolving situation.