Spot market rates for all types of freight – dry, refrigerated and flatbed trucks are at all time high since July 2018 according to DAT report this week. While this is a welcome news for the cash starved trucking industry and for many owner operators the questions persist if the recovery will last.
The current increase in fright rates is driven by several factors:
- Increase in consumer spending, partly driven by government cash
- Decrease in the number of available trucks as many truckers are still on the sidelines due to coronavirus concerns
- Unwillingness of many shippers to commit to long term contracts due to uncertainty, thus moving this freight to the spot market.
- Production cuts by truck manufacturers driving up prices of new equipment and inability or unwillingness of major players to finance the equipment.
To make a forecast in this fluid situation is very difficult because any of the above factors can change at any time. Let's look at each one and how likely it is to change.
Factor number 1 - consumer spending:
The consumer spending is unlikely to continue to increase rapidly and is unlikely to return to pre COVID levels absent significant scientific breakthrough on the vaccine front or scientifically meaningful treatment option. Unless congress agrees on additional stimulus spending targeted at consumers, as existing stimulus runs its course through the economy, the spending numbers will likely remain stagnant or even decrease slightly. This does not account any possible second wave of coronavirus cases or additional government mandated lockdowns due to increased cases or for political reasons around the election on Nov 6th. In any of these possible events the consumer spending will decrease sharply.
Factor number 2 – Truck and driver availability
While there were a lot of people initially sidelined because of coronavirus, more and more people are coming back to work due to lower concerns or necessity. The availability of trucks will still be affected from the driver shortage.
Factor number 3 – economic uncertainty and unwillingness to comit to dedicated trucking contracts:
The economic uncertainty will remain high in the foreseeable future. Many shippers will not comit to long term contracts, and their cargo will be placed on the spot market.
Factor number 4 – truck production cuts.
Unless there is a sustained demand it is unlikely that the semi-truck manufacturers will ramp up their production. The prices of new trucks will remain high
In conclusion while it is a welcome news that the spot market rates hit seasonal high; it is questionable if the rates can be sustained in the long term. The general economic situation and uncertainty around the coronavirus and the political situation around the November election will continue to bring downward pressure on the spot market rates. On the other hand, the shortage of truck drivers and available equipment constraint will push the spot rates up. One thing is for sure, volatility will be high and long-term planning is difficult.