Are Happy Times Here Again?

Well, we got our June jump in rates. Not surprisingly, or maybe surprisingly given how weak 2019 has been, the freight market finally saw consistently strong volumes coupled with rallies in price. June 2019 saw the DAT national dry van average jump 10 cents to $1.89 while the DAT National Average Futures, which as an aggregate covers 7 of the highest trafficked lanes, rallied $0.15 to $1.56, its highest mark since January 10.

Here we go again, the freight bull market is back on, right? No. For context, that DAT national dry van average is down 18.4% YoY and the peak for the DAT National Average Futures last June was $2.09, 53 cents higher than this June’s highwater mark.

There’s no import tariff race this year and the economy is slowing down, so it’s a factor of volume then, right? No. True, volumes are down from 2018, around 6% in June YoY, but that doesn’t equate to the contextually muted rally in rates from May to June, especially given the heavily patterned nature of freight market seasonality.

              What gives then? Trucks. Trucks, and trucks, and trucks. Mothertruckin’ trucks everywhere. From Tacoma to Tallahassee and all points in between, we are a nation of excess truck capacity. Given that July and August tend to pull back from the increased business of June, what does that mean for rates going forward? It means that these current prices cannot and will not hold, it’s not a matter of if but when. Looking to the DAT National Average Futures, we now sit with our flattest forward curve of the year. $1.48 on average for July to the $1.57 for December gives us a spread of only $.09, with August through September ranging only $.02 from $1.46 to $1.48. The market is broadcasting loud and clear to everyone who will listen that these rates will retreat again, and quickly, before settling back into the too familiar home of low, flat rates.

              What does an industry participant do next? If you’re a Carrier, that’s an easy one; December US National Futures lost $.13 in June alone, so take a peak at the long end of the curve before it goes even lower. A Shipper? That’s pretty straightforward, too. As previously mentioned, rates from July on are flat, so now is the time to lock in cheap rates before some unforeseen (hurricane) or unpredicted (earthquake) event upsets the status quo. If you’re a 3PL, right now might be the most critical time to apply hedges as those same risks to both the Shipper and the Carrier have the power to compress your margins beyond what’s acceptable, let alone comfortable.