Spot Market Below Contract Pricing!

Don’t Look Now, But Spot Market Pricing is BELOW Contract Pricing!

November 3, 2018 –

Taken a look at about any lane on DAT lately?  What you’ll find is that the spot market rate, which for the past couple years has been above the contract rate, is now below it.  In some cases well below it.  Take this lane as an example: Richmond VA to Owensboro KY – spot $1149 contract $1654.  But really you can look at about any lane.  They are all similar.

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To understand it better, let’s first look at the definitions of Spot Quote & Contract Rate Quotes

Having established that a strategy must be developed and that the shipper almost always drives that strategy, let’s define and examine.

What is a spot quote? A spot quote is a one-time rate quote issued to a shipper for one transaction or one group of transactions.  You find spot quotes on low volume lanes, sporadic seasonal lanes, and when a contract carrier has dropped a shipment for whatever reason. The spot market covers about 1/3 or all truckload freight movement.

What is a contract rate quote? A contract rate is a rate quote issued to a shipper that is to be held static for a period of time, usually one year.  The rate is generally quoted by an asset based carrier, but can be quoted by a broker as well if they have a dependable carrier that they know will handle the lane volume for them.

Since 2017, the spot market heated up and stayed heated as hurricanes, ELD’s, and a ramped up economy stoked the rate fires to near inferno status.  Economics 101 teaches supply vs. demand and demand was the clear winner.

Even into mid-2018, freight demand was projected to stay elevated, with the economy predicted to remain strong. Capacity “in terms of drivers and trucks” will remain short despite “a substantial number of trucks coming into fleet hands or truck dealer lots” later this year, he says. Fleets will struggle to find drivers to fill those new trucks mitigating their ability to increase capacity.

In an article published earlier this year, FreightWaves stated, “Since mid-year 2017, the spot market rate was higher than the contract rate. That development appeared to cool off in February (2018) and the first half of March (2018). What didn’t cool off is the increase in contract rates as shippers implemented higher contract rates based on the latest bid cycle.

It is not just the big guys are that are getting rate increases. Many shippers that FreightWaves spoke with mentioned that carriers that haven’t asked for rate increases for the past five years are coming to them demanding increase. In the tweener market, carriers are reporting getting high teens, as the owner operators are moving down market into shorter lengths of haul (i.e. moving out of the tweener market) to maintain compliance.

So what has caused the spot market rate to drop so suddenly?  First, the US economy has started to show a few signs of losing some of the steam it has had for so long.  Challenges are building. Preliminary US GDP growth according to advanced estimates will be at 3.5%, compared to 4.2% in the second quarter.  Actual numbers will be released November 28th.

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Second, housing starts have bounced up and down the past 5 months but permits for future homebuilding have continued to decrease. This signals weakness in the economy as housing starts and the homebuilding industry are a leading economic indicator.

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Third, new home sales continue to fall, so inventories are growing.  The Fed likely will raise interest rates again this year after keeping them artificially low the past many years.

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While all of this negative information is going on, guess what Class 8 truck sales are doing?  Continuing to set records.  North American Class 8 orders for September continued to surge, coming in at 42,300 units for the month.  The third quarter 2018 decisively set an all-time record with 146,800 Class 8 orders.  September Class 8 order activity was the 10th best month ever but with most of 2018 hitting all-time highs, was only the 5th highest monthly volume this year.  Sturdy freight growth continues to strain industry capacity and fleets are placing orders a year out to secure new truck availability throughout 2019.  North American Class 8 orders for the past twelve months have now totaled 497,000 units.

I’m not sure where all the drivers are to sit in these new trucks and I don’t have what percentage of these new trucks represent fleet increases versus replacements, but regardless, carriers are buying trucks with the new found rate increases that have secured.

So what to do?  Well it is bidding season so once again there will be shippers and carriers determining what rates will be put in place for the coming 12 months.  Shippers of course will be able to point to the spot market declines and the negative economic news while carriers will be able to point to the same things they have been pointing at the past year and a half.  It all makes for good theater so don’t miss it.

 

Hurricane Michael

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Blog Post from Russ Schultz, Owner:
I’m back from having spent 10 days in Marianna FL helping with Hurricane Michael recovery. I was there not as a trucker, but as a family member as my father-in-law and my sister-in-law’s family live there. We spent the time cutting trees, attempting to save food that was thawing, repairing damaged buildings including barns, houses, and out buildings and delivering meals to all First Responders and Law Enforcement Officers. A week after Hurricane Michael hit, 78% of the 18,000 residents of Jackson County Florida were still without power.

I found truck traffic moving steadily while I was there. We witnessed truckloads of water, telephone poles, lumber, generators and food all rolling into the area. FEMA was set up at the high school and volunteers from throughout the region were present. Despite a few instances of looting, the community was working together to help each other get through a most difficult time. Power was expected to be restored within 4 to 6 weeks.

The trucking and manufacturing community and the generous assistance of countless numbers of volunteers will have Jackson County back and moving forward. Thank you to all who assist in efforts like this throughout the USA.

#Logistics #Florida #Transportation #Broker #HurricaneMichael #R&SBlog

 

Do you know what product you’re hauling?

As a broker or 3PL do you know what product you’re hauling? Is it paper cups? Or are they paper cups for the World Series? Do you take the time to research your customer’s web site? To learn everything you can about your customer so that when you speak with them, they know that YOU are their expert? If you’re not, you should be. Your competitor is.

I have always thought of it like this. I’m not hauling “stuff” or “palletized freight”. I’m hauling people’s jobs. Their livelihood. I’m hauling the research and development department’s newest creation. The marketing department’s budget. The legal department’s disclaimer. The advertisement that the customer just saw on TV. That’s what I’m hauling. And it’s very important.

Take Nucor as an example. We don’t do business with them, but they have an excellent web site that can provide you with a wealth of information about 1) what they do and 2) where they do it.  Their interactive map http://www.nucor.com/products/locations/us/ allows you to click on any plant location and know exactly what products are produced there.

Interested in Eufaula AL freight? They produce steel for metal building systems there. How about Wallingford CT? Carbon steel reinforcing bar, wire rod, wire mesh fabrication, structural mesh fabrication, rolled wire and deformed wire are what are produced there.

Silgan has similar information on their website: http://www.silganholdings.com/plant_locations/index.shtml. You can see exactly which locations produce Metal Containers, Closures, and Plastic Containers.

If you’re going to be in the transportation industry, make sure you’re working each day to prove to your customer that you warrant their business from your knowledge and hard work. They’ll recognize that and have much more interest in a long term relationship. Get back to work!

Blog Post #1

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Two years ago I had the privilege of being the only Broker asked to speak at the Carrier Conference of one of the largest chemical companies in the world. My topic was How to SAFELY Broker Packaged Goods Chemical Truckloads. I’m humbled and honored to say that in my 25 year trucking career (20 on the asset based side and 5 on the non-asset based side), the companies I have worked for, or owned, have not had a material loss of containment or claim. #inspection #business #logistics #transportation #broker #truckload#truck

Here’s what I said at the conference:

BROKERING CHEMICAL TRUCKLOADS SAFELY

Click Link Above ^^^