Transportation rates could start rising again
With the typical summer lull in coast-to-coast produce shipments, truck rates are well below the very high rates experienced at the beginning of this year, but there is expectation that they will start rising again as typical fall demand increases.
“I believe we have hit the floor in terms of rates,” said Matt Patterson, senior transportation manager for Sunrise Logistics Inc., based in Ephrata, PA, on Aug. 8. “If we haven’t, we’re very close. As we moved into August, (produce) volumes dropped off as they always do.”
He said this led to a downward pressure on demand and rate decreases. He added that many transportation contracts are expiring and being rewritten at lower rates. This paradoxically tends to increase the spot market rate, which Patterson said should see a bump as we moving into late summer and early fall. He explained that when there is a downward pressure on contract rates, it leads to an increase in rejected loads on contract and an increase in demand on the spot market. That, in turn, sees an uptick in the spot market rate.
Patterson would not quote current truck rates nor how high they might climb, but he does not see rates reaching the $10,000 level in the foreseeable future. Truck rates well above $10,000 — as high as even $14,000 for the farthest cross country hauls — were commonplace in January and February. In fact, during the entire second half of 2021, the transportation supply chain was in a demand exceeds supply situation. Patterson said the available loads per truck was at about 14 available loads per each truck a year ago. Currently, he said it is at a 7 to 1 ratio. He noted that while you can’t equate the ratio to an exact rate, it is the movement of that ratio up and down that tends to mirror rate movement up and down.
Patterson said that ratio started to fall in the spring and “we saw rates drop off between April and May.” That decline has continued.
While Patterson does expect rates to climb, he said the trucking industry is in better shape than it has been since the beginning of the pandemic. “We have seen an incremental increase in the number of drivers entering the industry over the past year,” he said. “In fact, we are well ahead of pre-pandemic levels.”
Mitch Kowalewski, vice president of sales and marketing for Hwy Haul, which is a Santa Clara, CA-based technology company that provides an online freight broker app, agrees that the load to truck ratio has dropped significantly leading to lower freight rates. He said the big produce story over the summer has been the significant drop in volume coming out of California. “Volume is down 30 percent,” he said, opining that production issues, lack of water and inflationary concerns all appear to have played a role in the declining production numbers.
However, Kowalewski also expects rates to start to climb again. He noted that demand for trucks in the Northeast is up, leading to shortages, and there is also an influx in demand in the Southwest as shipments of avocados and other crops from Mexico are on the rise. He added that the higher fuel costs are putting an upward pressure on rates as truckers try to recoup the rising cost of operating a rig.
Mark Durfee, general manager at Giltner Inc., a logistics company headquartered in Nampa, ID, said demand for trucks has dropped this summer, leading to a big drop in the spot market price. While he eventually expects rates to start climbing again, Durfee said, “I don’t see another big spike coming down the road. There is generally an uptick in volume in September, which leads to higher rates, and I think that will happen.” He does not expect spot market rates to climb to earlier levels.
He also mentioned the unexpected drop in volume from California having a big impact on spot market rates, though he said Giltner did not feel it as most of its hauls are booked under a contracted rate. “Supply and demand are not in sync right now,” he reiterated. “Demand has gone down considerably.”
Durfee revealed that the trucking industry is often the first to experience dips in the economy as well as the first industry to feel it when the nation is moving toward better economic times. He indicated that by the time other indicators point to a slowdown, truckers have already felt the decline in consumer purchasing as product turns are slower and fewer loads are needed.
From that perspective, Durfee does not believe the economy has bottomed out. “We (truckers) are still feeling the effects. We will know it when it starts to change,” he said, bolstering his argument by recalling what happened when the economy went into the tank in 2008-09. He said the trucking industry felt it in 2007 and were among the first industries to rebound in 2009.