Freight volumes hold, albeit in an upheaval, as carriers and shippers enter contract season

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Updated Jul 27, 2020
Since it’s built around normal freight flow patterns, both in terms of types of freight and geographically, “the supply chain is struggling” to make a shift to the current freight demands, says DAT’s Ken Adamo. For carriers, especially those whose industrial loads may have taken a hit, that could mean they’re shifting business to new lanes and new shippers, throwing off their previous operational norms.Since it’s built around normal freight flow patterns, both in terms of types of freight and geographically, “the supply chain is struggling” to make a shift to the current freight demands, says DAT’s Ken Adamo. For carriers, especially those whose industrial loads may have taken a hit, that could mean they’re shifting business to new lanes and new shippers, throwing off their previous operational norms.

Despite high unemployment, lingering holes in the economy and spiking coronavirus cases, freight volumes are mostly holding steady, analysts said this week, propped up in large part by persistent consumer spending and retail.

After being jolted back to life in late May by lifted shutdown orders and the onset of the usual season spring freight season, “volumes peaked higher than we expected, and they haven’t come back down as fast or to the level we would have expected,” said Ken Adamo, chief of analytics at DAT Solutions.

Likewise, spot rates are seemingly bucking seasonal trends through the first weeks of July, Adamo said. But that’s mostly due to “supply chains [being] out of whack,” he said, with some freight that normally would have been hauled under contract being diverted to the spot market. Still, spot rates “rallied hard through the Fourth of July,” before stagnating for a week or two. “But now they have begun to climb again,” he said.

Part of the upward pressure on rates is a sag in capacity on the spot market, said Stephen Bindbeutel, director of strategy at Truckstop.com. Smaller carriers in particular, those with six trucks or fewer, have contributed to a dropping off in truck postings on Truckstop.com’s loadboard, said Bindbeutel.

But on the flip side, load postings have been climbing, with most weeks since mid-May posting double-digit percentage growth in load availability and some weeks seeing as much as a 30% week-over-week jump in load postings, said Bindbeutel.

That’s in line with data from the American Trucking Association released this week, which showed freight tonnage up 8.7% in June from May.

Though the service sector — restaurants, concerts, sports, movie theaters — has been hit hard by the COVID-19 pandemic, most of those industries aren’t big drivers of freight demand, and thus haven’t contributed significantly in suppressing freight volumes.

Industrial volumes, like inbound and outbound manufacturing loads, have not caught up the way the retail side has, said DAT’s Adamo, and that’s part of what’s contributing to some ongoing upheaval in the supply chain. Since it’s built around normal freight flow patterns, both in terms of types of freight and geographically, “the supply chain is struggling” to make a shift to current freight demands, said Adamo.

For carriers, especially those whose industrial loads may have taken a hit, that could mean they’re shifting business to new lanes and new shippers, throwing off their previous operational norms.

Likewise, for many carriers, that could mean shrugging off optional loads under contracts and shifting capacity to the spot market where they can land better rates, says Chris Caplice, executive director of MIT’s Center for Transportation and Logistics and chief scientist at DAT.

And with carriers and shippers entering the normal contract negotiation season, “contract rates aren’t really budging,” says Caplice, despite climbing spot rates. That’s because, in sum, net freight volume hasn’t climbed above pre-pandemic levels. It’s simply shifted. “Industrials are coming back a little, but the surge really is coming through retail,” he said.

Caplice expects contract rates to climb a percentage point or two, “depending on how aggressive shippers are.”

Though industrial load volumes on the whole are lagging, flatbed has seen strength, with demand for lumber and other home improvement materials “through the roof,” said Adamo. In addition to home improvement, construction has remained strong, both residential and commercial, which is a key driver of flatbed freight.

“The demand story continues,” said Jim Nicholson, vice president of digital brokerage Loadsmart. He’s noticed shippers working short-term bids to lock in trucking capacity, he said. “We are seeing shippers in a pinch to find the capacity they need, and from what we’re seeing in our internal data, we expect this trend to continue.”

Larger carriers, especially, he said, have shown a reluctance to enter into longer-term contracts. “Speaking to contacts at some of the large national truckload carriers, there is optimism that this surge will be prolonged,” he said.

However, Nicholson and the other analysts do foresee freight demand settling some, especially as seasonal patterns potentially resume — meaning a more sluggish August, September and October before the next freight season around the holidays.