Freight Rates Push Lower as Truck Capacity Outweighs Demand
As one major operator parks more trucks, a new report shows cheaper pricing in the spot market is driving the trucking business
A report published Tuesday by Cowen and Co. and Chainalytics said the spot market, where shipping prices currently are cheaper, is taking a bigger role in truck transportation as companies look to take advantage of plentiful capacity on the roads.
The report said the difference between spot and longer-term contract rates expanded in April, a sign that low demand is giving retailers and manufacturers more bargaining power. The difference in rates for dry vans, the most common type of big rigs, widened in April to 4.5% from almost even a month earlier, the report said, and spot rates for refrigerated loads were 6% to 9% below contract rates.
Early reports show demand was still week by the end of May, the report said.
The analysis underscores how excess truck capacity has driven prices down and squeezed companies heavily dependent on contracted over-the-road business. Swift Transportation Co. SWFT -1.32 % —the largest operator of truckload service, where companies contract for full trucks, typically on long distances—said on a conference call Tuesday that it is shifting some of its trucks to the spot market.
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Meanwhile, freight brokers such as C.H. Robinson, Echo Global Logistics Inc. ECHO -2.01 % and XPO Logistics Inc., XPO -3.30 % that hire trucks on an as-needed basis stand to fare better in a soft market because they can adjust more easily without costly assets on their books, analysts say.
A brokerage business gives companies “a way to tap into that other side of the market,” said Matt Harding, vice president at supply chain consultancy Chainalytics. “There’s a portfolio-effect when they broaden [their services]…They’re not so much beholden to a down market.”
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More trucking companies are looking for some of this leverage. Knight Transportation Inc., KNX -0.90 % USA Truck Inc., USAK -5.48 % Covenant Transportation Group, CVTI -1.96 % Werner Enterprises Inc. WERN -1.36 % and others have moved to offer freight brokerage and dedicated truckload services to their customers.
Mr. Seidl said prices are so low they could be nearing an “an un-investable rate,” and carriers are already pulling back their fleets.
“It’s incredibly hard to predict the actual bottom,” he said. But shippers are “crazy if you don’t try to lock in the rates now. They’re just going to go higher, unless we hit a massive economic downturn.”
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