Transportation Market Report (June 2024): Truckload, Fuel, LTL, and Intermodal

Truckload

OTVI and OTRI

The Outbound Tender Volume Index (OTVI) and Outbound Tender Rejection Index (OTRI) exhibited notable trends from May 2024 through June 2024, reflecting significant changes in the truckload market. Entering June, both indices experienced increases as OTVI increased MoM by 6.8% and OTRI by 27.09%.

OTVI spiked to around 12,500 in early June, likely driven by Memorial Day weekend, and leveling out, closing the month near 11,800. Concurrently, the OTRI surged to approximately 6.5%, reflecting a significant rise in tender rejections heading into the July 4th holiday.? This rise in tender rejections suggests a shift toward an inflationary market, as tender rejection rates above 5.5% typically signal tightening capacity and upward pressure on rates. These trends underscore the evolving dynamics within the truckload sector, influenced by seasonal demand and market conditions.

Spot Rates

In June 2024, dry van spot rates rose?2%. This modest increase suggests a stable market with slight upward pressure on spot rates, potentially indicating a marginal increase in demand or a minor contraction in capacity during this period.

Despite the onset of the produce season in June 2024, reefer spot rates experienced a slight decline of 2%. This decline suggests that while demand for refrigerated transport typically rises during produce season, other factors may have influenced the market. Potential contributing elements could include an overall increase in reefer capacity, regional variations in produce harvests, or changes in broader economic conditions impacting transportation costs. Although produce season usually drives up rates due to heightened demand, these external factors seem to have tempered the expected rate increase for June 2024.

Van Load-To-Truck Ratio Analysis

• May 2024: 4.39
• June 2024: 4.72
• MoM Change: 7.5%

?In May 2024, the van load-to-truck ratio was 4.39, which increased slightly to 4.72 in June 2024, indicating a month-over-month change of 7.5%. This uptick in the ratio suggests a slight tightening in capacity relative to demand for van freight, which can influence spot rates by potentially pushing them higher due to increased competition for available trucks.

?

Key Events Impacting June

1. Post-Memorial Day Adjustments: Following Memorial Day, the market experienced a return to more typical operating conditions.
2. Seasonal Produce Market Adjustments: While the produce season continued into June, its peak impact diminished compared to May. This led to a more balanced supply-demand dynamic, particularly affecting Reefer spot rates.
3. Economic Indicators: Broader economic factors, including consumer spending and manufacturing outputs, showed signs of stabilization, which helped moderate the demand fluctuations seen in previous months.

Fuel

In June 2024, diesel fuel prices experienced minor fluctuations. Starting at $3.726 per gallon on June 3rd, prices decreased slightly to $3.658 by June 10th. However, this dip was short-lived as prices rose again to $3.735 on June 17th, eventually reaching $3.769 by June 24th. Overall, the month ended with a modest increase of $0.043 per gallon from the initial price.

The reduction in diesel prices can be attributed to several key factors:

1. OPEC+ Production Adjustments: As noted in May's report, OPEC+ announced plans to relax its voluntary production cuts starting in the third quarter of 2024. This anticipated increase in oil production has already begun to impact market sentiment, leading to lower crude oil prices and subsequently, reduced diesel costs.
2. Stable Demand: Despite ongoing fluctuations in the broader economy, demand for diesel has remained relatively stable. This steadiness, coupled with increased supply, has helped maintain downward pressure on prices.
3. Refinery Utilization Rates: Refineries have been operating at higher utilization rates compared to earlier in the year. This increase in production capacity has ensured a steady supply of diesel in the market, contributing to the continued price decline.
4. Global Economic Indicators: Broader economic indicators, including global trade volumes and manufacturing activity, have shown signs of stabilization. These factors have reduced volatility in fuel demand, supporting a more predictable pricing environment.

LTL

ArcBest

ArcBest continued its strategic focus on prioritizing higher yields over volume in June. The company reported a 20% year-over-year (y/y) decline in tonnage for the month, marking a slight improvement compared to the previous two months. Despite this, ArcBest achieved a 25% y/y increase in yield. This increase was driven by factors similar to those in May, including lower shipment weights, price hikes, and a favorable mix shift towards contractual business.

ArcBest's dynamic pricing strategy, which was reversed following Yellow Corp's shutdown last summer, has continued to show benefits. In June, core account shipments and tonnage rose modestly, while asset-based revenue remained relatively stable with a 1% y/y decline. The company anticipates improved operating leverage in the second half of the year due to favorable rate increases outpacing wage hikes, aligning with the completion of the first year of their five-year labor deal.

The asset-light unit saw a 12% y/y increase in shipments per day in June, despite a 13% y/y drop in revenue per shipment. Rising purchased transportation expenses, particularly during peak inspection periods, contributed to this revenue decline.

XPO

XPO reported a 3% increase in tonnage for June, following a 2.4% rise in May. The company continued to gain more shipments, although with slightly lighter weights per shipment. Yield, or revenue per shipment, remained strong, showing significant increases in the first two months of Q2.

XPO's CEO highlighted that the company is gaining profitable market share through improved service quality. Additionally, XPO and competitors such as Saia have continued to benefit from purchasing terminals from the now-closed Yellow Corp., aiding their growth. XPO expects improved profit margins this quarter and plans to add 24 new terminals this year to boost capacity. Despite these positive developments, XPO's shares experienced a minor decline of 1.5% in after-hours trading on Friday.

LTL Capacity and Pricing

LTL capacity remained tight in June, prompting carriers to continue raising rates significantly beyond historical norms. Carriers are becoming increasingly selective about customer-specific pricing. XPO, for example, now requires new customers to guarantee at least $500,000 annually for tailored pricing, while existing customers must generate $120,000 annually to avoid being shifted to less favorable blanket rates. This trend is reflected across the industry, with other carriers also raising their criteria, making it more challenging for smaller customers to secure competitive rates.

Regulatory Update

The NMFTA announced upcoming changes to simplify the NMFC, expected to impact up to 3,500 single-class items. The planned changes will utilize a standardized density scale for LTL freight with no handling, stowability, or liability issues. Details of the changes will be announced on January 30, 2025, with an implementation date set for May 3, 2025.

?June 2024 saw continued strategic adjustments by major LTL carriers like ArcBest and XPO, focusing on higher yields and improved service quality. Despite a decline in tonnage, both companies achieved significant increases in yield, reflecting their shift towards more profitable business. The LTL market remained constrained, with capacity tightening and carriers implementing stringent pricing criteria. As regulatory changes loom, the industry is poised for further adjustments to adapt to the evolving landscape. Monitoring these trends will be crucial for anticipating future market movements and strategic opportunities in the LTL sector.

Intermodal

Volume Trends

Projections for intermodal volumes in June 2024 continued to show a downward trend, with a 2.1% month-over-month decline compared to May. Year-over-year, overall intermodal volume is down by 8.3%. Both international and domestic traffic remained lower than anticipated, reflecting ongoing competitive pressures from truckload carriers.

?

Intermodal Savings Index (ISI)

Contract ISI:

• Q2 Average: 126.2
• Savings vs. Truckload Contracts: 26.2%

?

Spot ISI:

• Q2 Average: 116.0
• Savings vs. Spot Truckload Rates: 16.0%

The Contract ISI for the second quarter showed a slight improvement, averaging 126.2, which represents a 26.2% savings on intermodal compared with truckload contracts. The Spot ISI also increased to 116.0, indicating a 16.0% savings compared with spot truckload rates. The increase in savings for both contract and spot ISI suggests that intermodal providers have been adjusting pricing strategies to remain competitive, particularly in key outbound lanes such as Los Angeles.

Network Performance

• BNSF: Oakland origin lanes experienced minor delays due to persistent low volume. Efforts are underway to optimize operations and reduce dwell times.
• UP: The network remained fluid, with no significant disruptions reported. UP continues to focus on maintaining high service levels and efficiency.
• KCS: The network remained fluid, with steady performance and minimal delays. The integration following the CPKC merger continues to show positive effects.
• CN: The network remained fluid, with good service reliability and on-time performance metrics.
• CP: Centerm operated at 97% capacity in June. Collaboration with terminal operators, CP, and procurement teams is ongoing to address and clear dwelling cargo efficiently.
• NS: The network remained fluid, maintaining high service standards and reliability.
• FEC: The network remained fluid, with stable performance and no significant delays.
• CSX: Idle containers at inland rail ramps averaged 6 days, slightly higher than May. Measures are being taken to improve turnaround times and reduce idle container days.

?

Key Developments

1. CPKC Merger Impacts: Since the CPKC merger, two additional services among four different rail carriers have been launched, offering more expansive coverage in and out of Mexico. This development could lead to Mexican intermodal becoming a larger factor in overall volume as these new services gain traction.
2. Competitive Pressures: The competitive situation relative to truckload carriers continues to challenge intermodal volume growth. Truckload carriers' aggressive pricing strategies and service flexibility are key factors impacting intermodal competitiveness.
3. Economic Influences: Broader economic conditions, including fluctuations in manufacturing output and consumer demand, have also influenced intermodal volumes. Stabilization in these areas could help improve volume trends moving forward.

?June 2024 saw continued challenges for the intermodal market, with volumes declining both month-over-month and year-over-year. Despite this, the Intermodal Savings Index showed improvements, indicating better cost savings compared to truckload alternatives. Network performance remained fluid across most major carriers, with efforts focused on optimizing operations and addressing capacity constraints. As the market continues to adapt to competitive pressures and economic influences, close monitoring of these trends will be crucial for anticipating future movements and opportunities in the intermodal sector.

Education

Strategic Cost Reduction for CFOs: Freight Audit’s Role in Enhancing Supply Chain Efficiency

Chief Financial Officers (CFOs) are key players in safeguarding their organizations’ financial health. With margins tightening and operational demands increasing, CFOs can greatly benefit from actively optimizing freight audits. This is not merely about cost reduction; it’s about strategically utilizing these processes as essential tools for enhancing supply chain resilience, ensuring compliance, and fostering informed […] Read More

Contributors

Thanks to this month's contributors:

Amber Miller - Vice President, LTL

[email protected]

Mike Beckwith - Vice President, Brokerage

[email protected]

Dan Burke - Senior Manager, Strategic Capacity & Pricing

[email protected]

Jeremy Eliades - Capacity Manager

[email protected]

About FreightPlus

FreightPlus is an industry provider of data-driven transportation management, offering businesses customized and fully tailored managed transportation solutions in a boutique environment where clients get the individual attention they deserve. FreightPlus combines first class customer service with innovative technology and industry best practices to help mid-size and growing companies work efficiently in the $800B domestic transportation market. FreightPlus aims to simplify complex logistics together. Contact us for more information.