August 2024 Freight Market Update

Author
Matt Gonzalez, Freight Pricing
Published Date
August 27, 2024

This summer has only gotten hotter, but the freight market has certainly cooled off. Rates and carrier rejections have normalized since the exciting weeks surrounding the July 4th holiday. Inside economist circles, there are both bulls and bears when it comes to a 2nd half freight market recovery, but both sides agree that we are indeed in a market transition, and that rates cannot go any lower. We at Stord Freight are not bullish on a 2nd half recovery, and are using this time to focus on sharpening up our processes and dialing in our sales and carrier strategies. When the market turns routing guides can fall apart, causing shippers to look elsewhere for capacity solutions, and we will be ready.

Top Trends:

Capacity: Nearly Everywhere

• More for-hire trucking companies left the market than entered it in July, indicating continued capacity shrinking for seven quarters straight.
  • Class 8 truck orders did increase, an indication of new entrants, but not enough to outweigh the carriers who left the market in July.
  • We saw a larger than normal exit rate of carriers in July, likely attributed to carriers who were waiting to see how summer peak shaked out, and came out of it disappointed.
• Rejection rates, or the rates at which carriers are decommitting from contractual loads to chase spot freight declined by 29% from its July peak. We are back under 5% rejections; anything under 5% tends to create downward pressure on rates.
  • This displays a full return to pre-holiday levels and a normalization in the market
• Capacity trends continue to mirror 2019 levels, which remained in deflationary waters through the end of the year.

Volume: Flowing

• Van: Volume remains consistent and in line with seasonal cycles. We are up 4% YoY and down approximately 3% from July peak according to SONAR’s Outbound Tender Volume Index.
  • Moving forward, we can expect a lull between now and Labor Day holiday and back to school, with another small stagnant cycle before the heat of the retail season in Mid-Late Q4.
• Reefer: Back to normal. Total volume trends dropped modestly from July peak, down 3% MoM but are up 6% YoY.
  • From June to July, we experienced a significant 11.5% drop off in spot loads, a metric displaying the heat of the produce season leading up to the 4th of July holiday, aka the “peak of summer peak season”.
• US Inbound Ocean Shipments: Container import peak season historically runs July through August. This year has been a bit different as we saw upticks in import volume in June, leading to the thought of an inventory pull forward ahead of a potential Trump presidency. However, we are toward the end of August and are currently sitting at 12% MoM, nearing record import volume highs. Volumes should be flattening out by now, but they’re not.
  • This indicates a (potentially) very strong back to school and retail shipping season, and confidence in consumers showing up to buy goods.
  • The Port of LA experienced a 37% increase YoY in July.
  • Although national truckload capacity is ample, this will undoubtedly cause tightness in Western markets, and other markets surrounding the top American ports by volume.
• US-Mexico: Container imports aren’t the only thing that’s booming. Laredo continues its reign as the largest inland port in the world, managing 40% of the truckload volume on the Southern border.
  • US-Mexico trade hits record $415B January to June.
  • Highest growth sectors include automotive and electric machinery.
  • Substantial investments in warehouse and industrial park development underscore Laredo’s expanding capacity to accommodate future trade growth.
  • Key concerns remain cargo theft and inefficient communication methods.
• US Port Labor Negotiations: Union contracts for East and Gulf Coast longshore workers expire September 30th and negotiations have been stalled since mid-June.
  • Pausing port activity right before import and retail peak season would create volume gaps in shipper supply chains that they’d be forced to quickly recover from. This would cause downstream demand volatility, ultimately impacting rates and traditional seasonality.
  • Shippers looking to plan ahead of a potential strike will execute a pull forward, bringing in more freight in Q3 than in previous years. Disruptions to the seasonal import volume trends can cause capacity crunches in maritime port regions like NJ, TX and GA.
• LTL: Many LTL carriers are predicting a flat second half of the year
  • Rates have mostly stagnated as shipment volumes have leveled off for most carriers post Yellow closure growth.
  • Most carriers are currently hyper focused on growing shipment volumes while reducing their overall cost. Lowering company Operating Ratios is a major point of emphasis for many providers.
  • Looking ahead, now is a good time to begin strategically adding carriers into your LTL service mix. Providers such as FedEx, XPO, and Saia have spent 2024 working to optimize their networks and focus on increasing service and reliability. This carrier focus coupled with stagnant rates provide an opportune time to look at underperforming carriers, lanes, and cost.
  • Stord Freight has a strong national and regional LTL carrier network that can now be accessed via our self-serve freight customer portal. Customers can benefit from our LTL carrier network in real-time by obtaining automated pricing, carrier tendering on demand, and tracking visibility by utilizing our freight portal.

Rates: Edging Downward

• Spot rates have stabilized after the summer peak, reflecting rates we saw in May at $2.02 for Dry Van and $2.39 for Refrigerated. Although the rate inflationary period was stickier than the year prior, it didn’t last for as long as we’d hoped.
• Contract rates continue their slow and steady decline MoM; a reflection of the high level of competition among competitors pricing RFPs.
• Spread: Contract rates, on average, still remain significantly higher than spot rates (about $0.56/mile). Spot rates remain just high enough to cover the cost of doing business for a carrier, and that’s about it.
• The closing of this gap will be a clear-cut indicator of a meaningful market flip. The gap is closer this year than last, but we haven’t seen spot rates higher than contract rates since January of 2022.

Diesel Fuel:

The national average for diesel fuel prices has taken a tumble for the past 3 weeks, albeit at a slower pace each week. We can anticipate that, pending any geopolitical events, that fuel will remain consistent through the end of the year, offering relief to carriers, who typically receive less money per load when fuel goes down.

Key Macroeconomic Call Outs:

• Retail spending up 1% MoM, beating analyst expectations, showing the continued resilience of the American consumer.
• Inflation is sub 3% for the first time in nearly three years, indicating a strong possibility of rate cuts in September.
  • The hope is this will drive consumer spending at levels higher than today, pushing up demand for capacity. Historically, the true impacts of rate cuts don’t come to fruition until several months later, so we shouldn’t expect real impacts here until FY2025.

Outlook: Q3 and Q4

• We have two freight events to look forward to in 2024: Back to School season and Retail season.
  • The Back to School season will display large swaths of volume leaving the Southern California market heading east, creating a need for outbound California capacity, driving up rates in the Western markets.
  • Retail season will display increased demand out of California and the Midwest. As containers get railed from the West Coast to IL, outbound Chicago/Joliet will become increasingly desirable, pulling capacity out of nearby markets, tightening the region.
• Inventory imbalances may cause upward pressure on rates in the coming months.
  • Reports of downstream inventory levels operating in lean environments coupled with the anticipation of a strong consumer spending season closer to the holidays may create more urgency than normal for freight to be pulled forward to fill the shelves of retailers and shippers.
• We will continue to see higher carrier authority revocations than carrier entrances, inching us closer to equilibrium.
• Q4 will be very telling about when the market might “flip” as carriers continue their slow and steady exodus, import volumes strengthen and the Midwestern major markets heat up.
• August should have the lowest count of RFPs from now through March. RFP season is upon us, and Pricing/Sales have dialed in strategies, processes and project plans to sustain the anticipated throughput and demand for accurate pricing.

Playbook:

Brokers

• Prepare for the tightest quarter we’ll have this year in Q4. Enable ops, sales and sales support to have fluid communication.
• Continually monitor weather risks along the Gulf Coast and Eastern Seaboard. Have spot and contract freight action plans.
  • If you use API-enabled spot quoting tools, ensure your business rules account for flooded areas and damaged roads.
  • Effectively manage tender acceptance policies.

Shippers

• Keep a constant pulse on your routing guide health over the next two quarters as conditions begin to change. Are you adequately prepared to handle tender acceptance volatility if spot rates tick up?
• Assess your risks if a port strike does take place on October 1, 2024. Do you have enough inventory to meet consumer demand during peak season?
• Evaluate freight RFPs carefully. If your suppliers submit a rate that seems too good to be true, it probably is. Look for sustainable rate offerings to reduce the risk of routing guide disruptions in Q4 and a potential market turn in Q2 2025.

Carriers

• Find the markets with the highest rejection rates and find loads going in. Once you are there, you can demand premium rates going out.
  • Produce season is dying down, if you find yourself in the southeast, your bargaining power becomes limited. Find the brokers who need freight moved into Florida, South Carolina and Southern Georgia.
  • Find your way to Los Angeles, Houston or Eastern New Jersey if you can. Back-to-School imports are surging and shippers may find themselves paying over market to ensure their freight moves out of the port city.