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July 7, 2022 12:37 PM, EDT

Spot Market Decline Accelerates as Demand Softens

truck and flatbedJohn Sommers II for Transport Topics

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Trucking’s spot market is experiencing an accelerating decline as pre-pandemic conditions re-emerge.

The coronavirus pandemic brought with it heightened demand and supply chain constraints over the past two years, pushing many shippers seeking capacity to the spot market.



But this year has seen the spot market shift closer to pre-pandemic norms.

Brent Hutto

Hutto

“We’re beginning to see a steeper decline, or correction, back to a familiar marketplace,” Truckstop.com spokesman Brent Hutto told Transport Topics. “It’s still above normal, still significantly above normal. But it’s declined every week. So, that’s one thing. Rates have not necessarily followed suit because the fuel costs keep going up.”

Truckstop.com data shows that total load availability was hovering around 300 points at the start of the year.

It reached a peak of 320.12 during the week ending March 7. The load availability started slowly falling from there with the occasional jump along the way. Memorial Day week saw that decline start to accelerate until reaching 222.73 for the week ending June 27.

“We’re seeing it correct a little faster than normal,” Hutto said. “We’re not seeing less freight in the overall marketplace. We’re seeing a correction of contract freight that had been pushed into the spot market because it was rejected at the rates that it was contracted at. More of that freight is staying in the contracted marketplace.”

Truckstop.com data did show that total load availability did recover some to 240.88 points during the week leading into the Fourth of July. But holiday weeks are often outliers, so the slight recovery in available loads isn’t necessarily an indication the overall trajectory has changed.

Dean Croke

Croke

“It’s rapidly normalizing and that’s what is throwing some people off and creating the headlines,” Dean Croke, principal analyst at DAT Freight & Analytics, told TT. “We are returning back to more normal freight market behavior and seasonality is kind of re-emerging albeit a little bit different. We haven’t seen that strong return to seasonality because spot rates aren’t going up in the four weeks before July 4, which they normally do.”

Croke noted dry van spot rates are still 26 cents per mile higher when excluding fuel surcharges than the average of June in pre-pandemic years 2015 through 2019.

“Part of the problem, though, is that operating costs have gone up by that much as well,” Croke said. “Rates aren’t as good as they were last year but they’re still OK. We’re not going to see this mass exodus, I don’t think, provided diesel comes down.”

Hutto noted because of fuel surcharges the rates have not been reflective of what carriers are spending. But from the perspective of shippers it appears rates have barely moved even as demand falls. Truckstop.com data shows rates have stayed around $3.13 a mile all year.

“What we’re seeing is that freight is starting to stay in the contract marketplace and not come into the spot marketplace where prices are much higher,” Hutto said. “So it started right after the Memorial Day weekend,” when the market started correcting.

Hutto added the declines have not been an indication of a freight recession given that spot demand is still above historic norms. But that is something he is still keeping an eye on as well as potential for a freight boom given seasonal patterns and a backlog of vessels coming in from Asia. But at the moment he sees the more likely outcome as a correction closer to normal trends.

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“Load post volumes as a measure of spot market demand have been decreasing,” Croke said. “But that’s not any big surprise given how high contract rates have been. So, if we talk about load post volumes, they’re about 10% lower than this time in 2018. But about 32% lower than last year.”

Croke noted that while load posts are lower than last year the current market is more reflective of previous freight cycles. He pointed to the relatively strong freight environment in 2018 in particular.

“The flip side is capacity in terms of truckers posting their equipment on load boards,” Croke said. “Demand looks like 2018, but the capacity supply side looks a lot like it did in 2019. And that’s part of the reason we’re seeing spot rates decline and contract rates start to decline is because we are in an oversupplied market now relative to demand.”