Contract rates set record while spot rates slide

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Updated Apr 20, 2022
trucks being loaded at a warehouse

Weakening spot market rates and skyrocketing fuel costs in March overshadowed strong truckload freight volumes and record-high prices for loads moving under contract, according to DAT Freight & Analytics.

The price to move van freight under contract increased 19 cents to $3.28 per mile as a national average, eclipsing the previous high set in February. The average contract reefer rate was $3.45 a mile, up 20 cents, while the flatbed rate gained 24 cents to $3.69 a mile.

“What made March unique is that shippers paid historically high prices to ensure that more of their loads moved under a longer-term contract, reducing their need for trucks on the spot market and causing rates to soften,” said Ken Adamo, DAT’s chief of analytics. “At the same time, carriers’ operating costs increased because of higher fuel prices. As a national average, fuel cost $1.07 per gallon more in March compared to February and $1.95 a gallon more year over year.”

The national average for a gallon of on-highway diesel currently sits at $5.10, according to the U.S. Energy Information Administration. The Gulf Coast and Midwest are the only two regions where the average is under $5, and Californians are shelling out $6.25 per gallon. 

Tim Denoyer, ACT Research vice president and senior analyst, said he believes the roughly 15% drop in truckload spot rates, net fuel, since January is the reflection of the Omicron effects that tightened capacity a few months ago, "combined with ongoing progress on the hiring front. A few points are also due to the inability of the spot market to pass through higher fuel prices, leading to an extraordinary hit to rates, ex-fuel.”

On the spot market, the national average van rate in March fell to $3.06 per mile, down 3 cents compared to February, while the spot reefer rate was $3.44 per mile, down 9 cents. The flatbed rate was $3.45 per mile, up 26 cents month over month and a new record. Removing the surcharge, the spot van rate fell 21 cents last month to an average of $2.42 a mile, and the reefer rate slid 28 cents to $2.74 a mile. The flatbed rate rose 5 cents to $2.68 a mile.

Small trucking companies and independent operators experienced significantly higher operating costs and lower revenues than they’ve become accustomed to over the past couple of years, said Adamo.

Spot rates remain well above year-ago levels, when the average price of fuel was $3.15 a gallon. In March 2021, the national average van rate was $2.67 per mile, the reefer rate was $2.95 a mile, and the flatbed rate was $2.78 a mile. Spot-market loads continued to be abundant. There were 3.7% more loads posted to the DAT load board network last month compared to March 2021.

However, signaling that the supply of trucks on the spot market outpaced demand, the national average van load-to-truck ratio fell to 4.6, down from 7.3 in February, meaning there were 4.6 available loads for every van on the DAT network. The reefer load-to-truck ratio was 8.4, down from 13.7. The flatbed ratio increased from 83.9 to 89.8.

DAT’s March Truckload Volume Index (TVI) for dry van freight was 305, up 23% compared to February; the refrigerated TVI was 206, a 13% increase; and the flatbed TVI was 247, up 24% month over month. The increases reflect more loads moved last month and March having more shipping days compared to February.

According to ACT Research President and Senior Analyst Kenny Vieth, moderating spot rates and falling load tender rejection data suggest the relationship between demand and supply is balancing, as freight growth slows and driver capacity growth persists.

"While we acknowledge the roll-off from peak activity, some of the giveback that began in March was the return of labor on diminishing Omicron COVID case counts; much of the 10% spot rate decline tracks rates to pre-Omicron levels," he said. 

Vieth added a holistic view of the market shows still-strong and wide economic underpinnings – from corporate earnings to industrial metrics to consumer balance sheets – and the inflation-driven slowdown that is occurring is happening in a market where pent-up demand is the rule.

"To that end, the economy remains a secondary risk to expectations," he said. "The greater risks to the downside through the balance of 2022 and into 2023 remain ones of supply, with Ukrainian neon (a gas critical in semiconductor manufacturing) and Chinese zero-COVID lockdowns at the top of the list of causes that could push vehicle output below expectations.”

ACT's For-Hire Driver Availability Index has returned to levels where freight rates turned down in late 2018 and 2019 as labor has recovered strongly from Omicron.

"We’re now in the late-cycle slower stage of the cycle," Denoyer said, "where ongoing slowing in freight volume and progress on capacity are ultimately deflationary for the rate cycle.

“However, overall freight volumes are still growing with significant restocking demand remaining and long-port backlogs persisting. And supply disruptions will continue, with the truck manufacturing cycle at heightened risk, which may result in tighter equipment capacity than currently expected, impacting market dynamics," he added. "Freight volumes have mainly weakened in the spot market, where load/truck ratios and load turndowns are falling sharply. While part of the transition to the late stage of the cycle, the broader market is not in freight recession yet.”