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

Truckload

May, as usual, was a busy month in the truckload (TL) market, characterized by four key events that traditionally result in supply and demand bottlenecks: the start of the produce season, Mother's Day, DOT Blitz Week, and Memorial Day. The combined effects of key events in May led to increased rejection rates and higher spot rates for Dry Van and Reefer, despite a slight decrease in overall volume. The rising rejection rates underscore the impact of supply constraints, which in turn drove up spot rates. However, the year-over-year decline in rates suggests that the market has not yet fully rebounded to previous levels.

Key Events:

1. Produce Season: The beginning of the produce season typically drives demand-related issues as agricultural products require transportation, leading to increased demand for truckload services. This surge in demand can create pressure on available capacity, resulting in tighter market conditions.
2. Mother's Day: The period leading up to Mother's Day also contributes to demand spikes, as retailers and suppliers rush to meet consumer needs for gifts, flowers, and other related goods. This increase in freight volume further intensifies the demand for transportation services.
3. DOT Blitz Week: This annual event focuses on road safety inspections, often leading carriers to temporarily reduce capacity to avoid potential fines or delays. This reduction in available trucks can create supply constraints, impacting the overall market balance.
4. Memorial Day: Memorial Day affects both supply and demand. On the demand side, there is a push for goods related to holiday celebrations, travel, and retail promotions. On the supply side, many carriers take capacity off the road to allow drivers to spend time with their families, leading to a temporary reduction in available trucks.

Rejection Rates:

Rejection rates increased by 40 basis points (BPS) during May. While this rise might not seem substantial at first glance, it is significant because rejection rates climbed day over day from the start of Blitz Week through Memorial Day, eventually peaking at 4.94%. This steady increase in rejection rates is particularly important because a rate exceeding 5.5% often signals a potential market shift. The rise in rejection rates indicates growing supply constraints as carriers became more selective in accepting loads. The market saw little to no change in demand, highlighting that these appear to be supply related constrains.

Spot Rates:

The supply constraints led to a rise in spot rates for both Dry Van and Reefer categories. Dry Van spot rates increased by 1.5% MoM, while Reefer spot rates saw a more pronounced increase of 3.9% MoM. However, when compared to the previous year, rates for both modes were still down, with Dry Van rates decreasing by 2.1% year-over-year (YoY) and Reefer rates down by 1.6% YoY. This discrepancy indicates that while there was short-term pressure on rates due to the events in May, we still have not begun to see upward movement compared to where we were last year.

Fuel

In May, diesel prices fell significantly, dropping by $0.18 per gallon. This decline continued a trend of consistent weekly reductions that started the week of April 8, 2024. Over this period, diesel prices decreased from $4.061 per gallon to $3.758 per gallon by the week of May 27, 2024, marking seven consecutive weeks of falling prices by the end of May.

Looking ahead, OPEC+ has announced plans to relax its voluntary production cuts beginning in the third quarter of 2024. This adjustment is expected to result in lower inventory levels through the first quarter of 2025. Additionally, OPEC+ has revised its target price for 2024, lowering it to $84 per barrel.

This move by OPEC+ signals a shift in strategy aimed at balancing supply and demand in the global oil market while maintaining price stability. The anticipated increase in oil production should help to moderate prices, providing some relief to markets that have experienced volatility.

LTL

ArcBest has prioritized higher yields over trading volume, with a 22% y/y decline in tonnage for the second consecutive month in May, but a 26% y/y increase in yield, driven by lower shipment weights, price hikes, and a favorable mix shift toward contractual business. Initially adopting a dynamic pricing strategy to manage costs and avoid furloughs, ArcBest began reversing this approach after Yellow Corp's shutdown last summer. In May, core account shipments and tonnage increased, though asset-based revenue fell 2% y/y. The company expects improved operating leverage in the second half due to favorable rate increases outpacing wage hikes, as they complete the first year of a five-year labor deal. The asset-light unit saw an 11% y/y increase in shipments per day in May, despite a 14% y/y drop in revenue per shipment and rising purchased transportation expenses during DOT’s inspection week.

XPO reported a 2.4% increase in tonnage for May, following a 3.1% rise in April, with more shipments but slightly lighter weights per shipment. Their yield, or revenue per shipment, increased significantly in the first two months of Q2. XPO's CEO said they're gaining profitable market share by improving service quality. XPO and competitors like Saia have bought terminals from the now-closed Yellow Corp., helping them grow. XPO expects better profit margins this quarter and is adding 24 new terminals this year to boost their capacity. Despite these positive moves, XPO's shares dropped 2.5% in after-hours trading on Thursday.

LTL (less-than-truckload) capacity is tightening, leading carriers to raise rates significantly beyond historical norms. In response, carriers are also becoming more selective about customer-specific pricing. XPO, for example, now requires new customers to guarantee at least $500,000 annually for tailored pricing. Existing customers must generate $120,000 annually to avoid being shifted to less favorable blanket rates. While XPO's thresholds are particularly strict, other carriers are also raising their criteria, making it harder for smaller customers to obtain competitive rates. This shift highlights the growing focus on higher-yield business as carriers adapt to the constrained LTL market.

The NMFTA has announced that they will be implementing some major changes in order to simplify the NMFC. They plan to use a standardized density scale for LTL freight with no handling, stowability, and liability issues. The changes are expected to impact up to 3,500 single-class items. The details of the exact changes will be announced on January 30, 2025 with an implementation date of May 3, 2025.

Intermodal

Overall projections for intermodal volumes declined by more than 1% in 2023 and 2024, as the poor competitive situation relative to truckload carriers remains in place until the end of next year, overall volume still projected to be down 7.9% year over year. International and domestic traffic are each expected to be lower than previously anticipated last month.

?Two additional services among four different rail carriers have been announced since the CPKC merger became official offering more expansive coverage in and out of Mexico. This could lead to Mexican intermodal being a larger factor in overall volume.?

?Intermodal Savings Index (ISI): The Journal of Commerce Contract ISI averaged 125.8 in the first quarter, representing a 25.8% savings on intermodal compared with truckload contracts (Chart 2A). The Spot ISI averaged 115.2 in the first quarter; a 15.2% savings compared with spot truckload rates. The contract ISI began the first quarter weaker than in past years, but as intermodal providers caved in on pricing, particularly in outbound Los Angeles lanes, savings recovered by March. Since 2018, the average monthly contract ISI value was 125.9 and the average spot ISI value was 115.2?

With spot and contract the current (Projection for Q2) 3 month rolling average for the ISU is 115.2 for spot and 125.9 for contract. This equates to a 15.2 (on a $1000 you would save $152) percent savings in spot vs truckload and a 25.9 percent savings in contract vs truckload (on a $1000 you would save $259).??

?·???????? BNSF: Oakland origin lanes were delayed due to low volume.?

·???????? UP: Network remains fluid.?

·???????? KCS: Network remains fluid.??

·???????? CN: Network remains fluid.??

·???????? CP: Centerm is at 95% capacity. Continue to work with terminal, CP, and procurement to clear dwelling cargo.??

·???????? NS: Network remains fluid.?

·???????? FEC: Network remains fluid.??

·???????? CSX: Idle containers at inland rail ramp averaging 5 days.?

Ocean

In 2024, we've witnessed a surge in both inbound volumes and prices compared to the previous year, reflecting significant shifts in demand and market conditions. Inbound volumes to US ports have experienced a notable increase, with Twenty-foot Equivalent Units (TEUs) rising by 20% in 2024 compared to 2023. This surge can be attributed to a combination of factors, including consumer demand, restocking efforts after pandemic-related disruptions, and the ongoing shift towards e-commerce.

Concurrently, ocean shipping prices have surged in response to heightened demand and supply chain constraints. Freight rates for inbound shipments to the US have increased by 20%-30% in 2024 compared to the previous year, reflecting the challenges posed by vessel capacity constraints, port congestion, and operational disruptions.

The increase in both inbound volumes and prices indicates the importance of proactive planning and strategic decision-making for stakeholders across the supply chain. As we navigate these dynamic market conditions, it's essential for businesses to optimize their logistics strategies, enhance supply chain visibility, and explore innovative solutions to mitigate the impact of rising costs and ensure the efficient flow of goods to US shores.

The increase in inbound ocean freight metrics from China to Mexico for example reflects a strategic shift in sourcing and manufacturing dynamics driven by various factors. As businesses seek to diversify their supply chains and mitigate risks associated with geopolitical tensions and trade uncertainties, Mexico has emerged as an attractive alternative to China for manufacturing and assembly operations. Proximity to the US market, favorable trade agreements such as the US-Mexico-Canada Agreement (USMCA), and lower transportation costs compared to shipping goods directly from Asia contribute to Mexico's appeal as a manufacturing hub. Consequently, we're witnessing a notable uptick in inbound ocean freight volumes from China to Mexico as businesses capitalize on the strategic advantages offered by the Mexico-US trade corridor.

Education

Truckload Market Update: Q2 2024

US TL Market Overview The US TL market is a dynamic ecosystem that constantly evolves in response to economic, regulatory, technological, and weather disruptions. In this post, we’ll provide an update on the current state of the US TL market, highlighting key trends and insights that can help shippers, carriers, and other stakeholders navigate the […] Read More

Decoding Food and Beverage Supply Chains: Strategies for Success

In the food and beverage supply chain, every step counts. The journey of perishable goods involves a delicate dance of logistics, temperature control, and meticulous planning. In this blog, we will explore the nuances of food and beverage supply chains, emphasizing the pivotal role of temperature-controlled equipment, the intricacies of shipping dry goods, the importance […] 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.