July 2024 Freight Market Update

Author
Matt Gonzalez, Freight Pricing

Published Date
July 16, 2024

We have passed the halfway point in 2024, and the view of the windshield looks brighter than the rearview mirror. Yes, we are still oversaturated in terms of capacity, and the majority of U.S. freight markets are displaying deflationary patterns, but the lead up to the 4th of July holiday showed rejection rates at 2-year highs across multiple markets, causing rates to shoot up as high as 9.6% week-over-week at the national level, right before the holiday.

Although we are not bullish on a full recovery in the 2nd half, we are optimistic that we are past the worst days, and a slow and steady market incline may be on the horizon.

Top Trends:

Capacity:

• National rejections crossed 6% leading up to EOQ, a metric not hit since July 2022.

• While, at a national level, capacity can still be found almost anywhere, the summer peak season showed us the effects of how many carriers have left the market over the past two years. Major markets such Los Angeles/Ontario, Dallas, Houston and Atlanta all crossed the 6% line, while Memphis went into inflationary waters at 11%. Roanoke saw arguably the worst capacity tightening in 28 months, peaking at 21%.

• For those who may not look at SONAR daily, a 21% rejection rate means one out of every 5 trucks is forgoing their contractual agreements to chase spot freight. Why? Because it’s paying more.

• Tweener haul and Mid haul freight display rejections 21% higher than the next highest LoH (Long Haul freight), displaying a need to diversify pricing strategies while quoting spot freight.

• National Rejection rates are expected to die back down by late July before rising again during the Q4 retail season peak. Last year, they leveled out completely one week after Independence Day, but tightness seems a little stickier this year.

• If there’s one year we can compare 2024 to, it’s 2019. Trends have been almost spot on since mid-May.

Volume:

• Van: Volumes are still up roughly 9% YoY, a strong flow which is expected to continue into EOY. We anticipate some stagnation or even slight reductions in Q3 before the retail and import season heats things up in Q4.

• Reefer: With July 4th being the peak of summer peak season, we are in the midst of the peak hangover, with DAT Load Postings down 48% WoW and over 9% MoM.

• US Inbound Ocean Shipments have steadily increased since the Chinese New Year at the end of January, as have US Customs clearances, and are expected to continue its upward trajectory for a few key reasons:

• Election year: Potential Trump Trade Tariffs are causing some suppliers to pull forward their inventory/raw materials from China.

• Equipment shortages and port congestion as Asia is improving, smoothing out the supply chain of goods coming from America’s largest trade partner.

Spot and Contract Rates:

• Spot rates rose almost 10% since Mother’s Day, from $2.29 to $2.39 and  - a larger jump than the same period last summer. Note that 4th of July peak rate data has not been released at the time this is being drafted, and we expect this jump from Mother’s day to be even larger.

• Since the Great Freight Market of 2021, we’ve only seen the spread between spot and contract rates reach the level it currently sits at three times: May 2022, December 2022 and January 2024.

• Contract rates sit 56 cents higher than spot rates, though that margin is expected to continue to shrink throughout the year, albeit we don’t know by how much.

• Take this as a positive sign, because the closer this gap gets, the more volatility you will feel in the market. Carriers will start looking to the spot market for higher paying loads, disregarding their contractual obligations, thus creating a ripple effect of higher costs for shippers to move their freight.

Outlook:

• The short term outlook for the overall state looks to remain soft, though we have seen more signs of life in the past 2 months than we have in the past 600+ days of the Great Freight Recession.

• It’s safe to expect that the spot market environment will soon revert back fully into a competitive state, where market share remains a dominant goal.

• I expect many shippers to continue to push to maximize savings, while others proactively enlarge their routing guides and onboard new capacity in anticipation of meaningful market shifts.

• 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.

Hurricane Season:

The NOAA’s Hurricane Center predicts above normal 2024 Atlantic hurricane activity, with 17-25 named storms and 4-7 major hurricanes. We saw Category 1 Hurricane Beryl barrel into Houston, causing localized flooding and wind damage. Though millions lost power and highways were underwater, the overall impact was not significant from a rate and capacity standpoint. Carriers, Brokers and Shippers alike should develop action plans in anticipation of capacity tightness, rate increases and inaccessible facilities as more storms roll through this season.

Diesel Fuel:

We have seen a reversal in Diesel price trends, with prices increasing for 4 consecutive weeks. Carriers will feel their operating costs increase as a result, while brokers will see higher all in rates on their contractual commitments.

Playbook:

Carefully monitor Outbound SoCal, Memphis, Roanoke, Dallas and Houston for the next two weeks; as all of which have rejection rates above 6%.

• Brokers

  • Double check with your carriers about their sentiment going into/out of Houston. Depending on where the load is picking up, it may or may not be a problem.
  • Price spot freight aggressively into markets where outbound rejections are above 5%. Carriers will make their money coming out, so negotiate under market costs going in.
  • Leverage the increase in fuel costs to pad your margins and attempt to maintain carrier rates despite fuel increases.
  • Hurricane Action Plan: Understand your acceptance requirements, and anticipated lanes into/out of hurricane-prone areas and have a spot pricing strategy in place.

• Carriers

  • Understand the hot markets (Hot Markets Map on DAT, or % Market Share on SONAR), and position yourselves to take freight out of them. The hotter the market, the more negotiation power you have as a carrier. If necessary, take the discounted rates going in and charge premiums coming out.
    • Take a discount going into Los Angeles, Ontario, Dallas, Houston or Memphis, and demand above market rates coming out. You will find them.

• Shippers

  • Continue to be wary of the rates they are receiving from carriers and brokers alike. Take a close look at your carrier scorecards and find correlations between significantly under market pricing and on time performance.
  • Now is the time to begin beefing up your routing guide with supplemental capacity. As we begin to come out of the Great Freight Recession, more of your incumbents will be prone to reject primary freight and look to the spot market for profit. Protect yourselves by onboarding new providers into your network.

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