Market Update - May 2023

Summer is here and signs are pointing to spot rates hit their lowest point...but have they? It's important to keep in mind that the gap between spot and contract rates remains wide. For van and reefer equipment, the gap between spot and contract rates stands at $0.61 and $0.51 per mile, respectively, meaning downward contract rate pressure will persist.

Spot postings significantly lower than last year, with pockets of tightness in the southeast due to produce season. Overall freight demand may be down, but as capacity normalizes, we can expect the supply and demand balancing act to continue.

With the southeast's produce season in full swing, we're seeing pockets of tightness in the reefer market, leading to a modest increase in rates. Despite this, overall freight demand faces headwinds, with spot postings remaining significantly lower than last year. However, a large number of shipments continue to move via primary carriers, illustrating historically strong contract compliance. Left scratching your head as to why? The gap between contract and spot rates tells the story.

The manufacturing industry, projected to propel demand in 2023, has instead witnessed its sixth consecutive month of contraction. This raises concerns over potential downside risks in demand, especially for logistics and supply chain managers whose businesses hinge on stable demand.

Fortunately, the National Retail Federation has reported a surge in retail imports, giving us comfort amidst these trying times. Despite an anticipated surge throughout the summer, they are expected to plateau just below pre-pandemic levels, a stark contrast from the staggering volumes of 2022.

The labor market remains relatively healthy in early May, and this should boost confidence in consumers’ ability to maintain spending levels and prevent rapid truckload demand declines.

That being said, trucking employment rose unexpectedly for the second straight month, indicating that carriers are resilient despite the tough conditions. It remains to be seen how carriers can maintain their resilience if conditions do not improve in the near future.

Dry van carriers may experience worsening rate conditions that may fall below profitable levels for those with high spot exposure. Reefer carriers in the right regions may see upward rate pressures due to seasonal demand.?

As the market continues to normalize, rate conditions are worsening for dry van carriers and may be below profitable levels for those with high spot exposure. Furthermore, reefer carriers in the right regions are seeing upward rate pressures as seasonal demand picks up.

Looking ahead, spot rates are expected to continue finding its floors, and remain relatively stable throughout the year with seasonal fluctuations. However, the unprecedented spot-contract gap will continue putting deflationary pressure on contract rates.

Sources: American Trucking Association, The Conference Board, FTR Transportation Intelligence, U.S. Department of Transportation, S&P Global