Freight Rates Searching For Market Bottom

Spot Market Freight Rates and Contracted Freight

While contracted freight is enjoying a relatively stable market recently, the spot market has taken some serious hits with rates down 36% since June 2018.  Contract freight has found a mutual stability in the early months of 2019.  Shippers are afraid to pull their loads from carriers for fear of tight capacity market conditions.  This could potentially hinder supply chains should trucks not be available in the right areas.  However, this stability hinges on shipment volumes remaining consistent as well as spot market instability.

On the flipside of the coin, carriers living on the spot market are feeling the pressure as rates are down amidst a capacity surplus.  In a push to combat the new ELD mandates in 2018, carriers faced a driver shortage issue.  This resulted in higher driver pay and better incentives to find drivers with the right qualifications to seat their trucks.  Fast-forward to April, 2019, truckload capacity was up 5% over 2018, but there was not enough volume in the market to satisfy the added demand.

However, on May 10 the 15% tariff hike on all Chinese imports caused a 6% drop on the Outbound Tender Volume Index in a 6-day period causing a shift in the stability of contracted freight.  The Outbound Tender Volume Index measures the total amount of contracted freight in the market.  With the shipment volume drying up, a tight labor market has been created.  Miles dry up and drivers pursue different employment options.  This in turn forces carriers to increase driver pay and thus inflate market rates.  Shippers are moving to the spot market for better rates than their inflated contracted rates.

The capacity surplus in the spot market is driving market rates down, while the drop in shipment volume to contracted carriers is driving rates up forcing the market as a whole into a race to the bottom for freight rates.  In addition to freight rates falling, oil prices are up nearly 32% since the start of 2019 that will cost carriers on average a $0.07 per mile increase in fuel expenses… further driving fleet costs up.

Early June Capacity Crunch

The Commercial Vehicle Safety Alliance (CVSA) International Roadcheck inspection is fast approaching.  June 4-6 commercial vehicle inspectors will be doing inspections of drivers and their trucks.  Each year the focus of these inspections changes with 2018’s focus placed on hours-of-service violations.  2019’s International Roadcheck event will be primarily focused on steering and suspension components of trucks.  The CVSA administers Level 1-5 inspections with the Level 1 inspection being a 37-step procedure of both the driver and vehicle.  This 3-day event is expected to cause a momentary tightening of capacity due to added over-the-road hours for truck drivers.

Furthermore, the inspections include checking items such as: coupling devices, frames, exhaust systems, fuel systems, steering mechanisms and more.  For a full list of items included in inspections click here.  Additionally, drivers are required to show their driver’s license, medical examiner’s certificate and skill performance evaluation certificate, record of duty status and vehicle inspection report(s).

BM2 Freight Services, Inc.

Phone: (859) 308-5100


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