Have you been using the truckload spot freight market a lot less? If so, you aren’t alone. Due to the depressed rates over the last year, many have given up on spot freight. Still, it may be time to give it a second look.
Taking a closer look at the numbers, external pressures that had been pushing rates down may be balancing out, although this doesn’t mean they will be returning to last year’s levels any time soon, or the record-breaking highs of 2014.
The Full Story
So while the spot freight market hit a big bump in 2015, things didn’t really start to improve in any measurable way until this past spring. The reasons behind the price fluctuations can be traced right back to what has been affecting the overall economy, mainly the big drop in fuel prices.
When the oil industry all but collapsed, there was also a crunch in moving commodities, which had a spill-over effect in the spot freight market. First, flatbed freight saw the biggest hit, followed by van freight. With California’s continuing drought, the produce spot freight market also dried up.
Still, with the oil industry on the rebound, there may be some movement again in the spot freight market. Consider that retail sales in April and May increased at a rapid clip. In June and July oil and fuel prices started to creep up. California even saw some relief with improvements in their ongoing drought conditions.
And whether you call this a coincidence or not, the North American Freight Index took a big jump over the course of the spring and into the summer. Yet, the market isn’t completely out of the water just yet, as there are still factors at play that might put a cap on industry growth.
One such example is in linehaul rates. Considering there was a race to cut rates in the first half of the year, the added capacity brought online in 2015 only compounded the issue. Manufacturing also remains week, which puts a crimp on overall spot freight performance.
Even with the headwinds, big players are hopping back into the market. Swift Transportation recently announced that it has increased its spot freight activity somewhat, mainly due to the dearth of available freight in some areas. The fact is, operating in the spot freight market is a lot better than having your trucks sitting idle and generating no revenue at all.
What Does the Data Say?
The fact is, spot prices have been rising far more than contract prices. If you take a look at the data going back to 2008, just before the Great Recession, you will see that since the bottom, contract prices have seen their growth expand by about 1% year over year.
Yet if you look at spot prices, even with last year’s downturn, growth in prices has averaged around 2%. What this means is that random freight is increasingly making its way in from the edges of contracts back into the spot market. As rates have improved, so has volume.
One item to note, however, is that spot prices do tend to be more volatile. As capacity pressures go through some wild swings, so will price changes within the spot market. There is also a shorter lag time between market events and price responses.
On the flipside, contract rates have a much more defined lag. Contract prices will generally hit their peak around two quarters after spot rates make their move. Part of the reason behind this lies in the nature of data collection and contract renewal schedules.
Expect these kinds of lags, whether in spot freight or contract work, to improve over time as new forecasting tools and technological innovations emerge. And yet, with the market changing, you can expect both carriers and shippers to sustain these conditions for a while. After all, it’s just human nature.