Freight Rate Survey 2017

Transcription

1 Freight Rate Survey 2017 Analysis of the Freight Rate Survey Since the recession which struck the United States in 2008, the trucking industry has been in a state of flux, marked with numerous governmental regulations and mixed economic growth. Although the severity of the recession has varied considerably from industry to industry over the past several years, the trucking industry has been a continual mainstay for the general public and a critical vehicle on the road to economic recovery as approximately 61 percent of all freight, accounting for $11.7 trillion, is moved by truck according to the Bureau of Transportation Statistics 1. The trucking industry however estimates the amount of freight moved by truck to be approximately 70 percent. 2 The future outlook for the freight market was generally positive at the end of 2016, but signs of a strong rebound in freight rates from the past two years were far from certain in the early stretches of For example, while orders for trucks and trailers strengthened in the first quarter, both freight demand and freight rates continued to be sluggish. John Larkin, managing director and head of transportation capital markets research at Stifel, noted that pricing still remained a challenge in the U.S. truckload market, with most customers and shippers not in the mood to accept price increases off generally depressed 2016 levels. 3 However, as the U.S. economy began to show signs of growth in the latter part of 2016 with a 3.5 percent increase in real gross domestic product (GDP), along with rising spot market volumes, shippers decided to initiate contract negotiations ahead of schedule in early 2017 in order to avoid rate hikes in the latter part of the year. 4 The ultimate success of this strategy was unknown in the early months of 2017, but with a 3.1 and a 3.3 percent increase in real GDP in the second quarter and third quarter respectively, 5 the advanced contract negotiations appears to have been effective. Especially as demand began to increase and as capacity began tighten in the mid and latter portions of 2017, which stemmed from increases in manufacturing output, housing and construction, consumer spending, and increased freight volumes. We ve experienced a general tightening of capacity over a broad base, Bob Biesterfeld, vice president of North American transportation at third-party logistics company C.H. Robinson, said in an interview July 14. That s been happening over the course of the year, but it s taken off in the second quarter, leading to higher truckload and lessthan-truckload rates, he said. According to the JOC Truckload Capacity Index, which is based on actual truck counts of large publicly owned trucking companies, capacity rose from 78.8 in the second quarter to 79.3 in the third quarter. Though the gain was small, it was the third straight quarter-to-quarter increase for the index after four quarters of decline in 2016, when carriers were cutting their fleets amid low freight demand /10

2 Biesterfeld also noted that both shippers and vendors were being forced to dig deeper into their routing guides in order to locate motor carriers with available capacity. 7 The pressures on capacity and thereby rates were further compounded however with the landfall of hurricanes Harvey and Irma in August and September respectively. The spot market rates, which had already been rising, surged dramatically with rates from Charlotte, North Carolina, to Lakeland, Florida, rising 42 cents on average to $3.32 per mile the week of Sept. 16, according to DAT Solutions. Although the rates dropped 24 cents on average to $3.08 per mile the next week, freight rates have remained high. In terms of demand, 2017 appears to have been the best year since 2014 when the U.S. economy expanded at its fastest rate since the 2008 recession. 8 Graph 1: Spot Market Rates, 2017 Source: DAT Trendlines Graph 2: Contract Rates, /10

3 Source: DAT Trendlines Graph 3: Load to Truck Ratio, 2017 Source: DAT Trendlines Statistics from the American Trucking Association (ATA) revealed that the volume of hauled freight has steadily increased throughout ATA s seasonally adjusted For-Hire Truck Tonnage Index has grown from in January to in November. According to FTR and ACT Research, motor carriers have increased their Class 8 heavy-tractor orders in order to meet demand. By November 2017, truck orders had already exceeded 221,000 compared with 184,686 for all of 2016, 9 a trend which is expected to continue into While JOC s Truckload Capacity Index remained under 80, meaning that there are still thousands of trucks without a driver, trucking employment continued to grow as November marked the fourth consecutive month of growth in the trucking industry. Werner, the sixth-largest U.S. truckload carrier by revenue, stated that they had received more than 100,000 applications for truck driving jobs in 2017 alone. 10 Though large motor carriers, such as those represented by ATA, continue to claim that the trucking industry is plagued with chronic driver shortage, real-world facts produced by DAT, the Journal of Commerce, IHS Markit, and the Federal Motor Carrier Safety Administration (FMCSA) demonstrate 3/10

4 that the primary issue is actually driver retention. According to ATA, the turnover rate at large truckload fleets grew to 95 percent in the third quarter. Therefore, in order to gauge the current freight market, OOFI ed a twenty-five question survey to 15,453 members who allowed for communication December 7, The Survey generated 629 responses for a started/viewed rate of 64 percent and a 99 percent confidence level with about a 5 percent margin of error, thus the Survey provides an essential snapshot of what is occurring within the trucking industry today. In particular, the survey respondents were comprised almost entirely of owner-operators (83%), with a small segment of company drivers (8%) and fleet owners (8%). The owner-operators consisted of two distinct segments, owner-operators under their own authority (39%), which was 5 percent decrease from the previous year, and owner-operators leased-on to a motor carrier (44%). Other than company drivers (82%), a majority of members indicated that they are truckload carriers (90%) regardless of the type of equipment or freight that they haul. It is interesting to note however that 87 percent of those who hauled refrigerated freight were truckload carriers, which was the lowest among the major types of freight hauled. Graph 4: Type of Operation Consistent with other surveys, OOFI found that dry vans, flatbeds, and refrigerated trailers, or reefers, were the three most common types of trailers pulled. Owner-operators under their own authority primarily pulled flatbed trailers while the other operational types predominately hauled dry van trailers. Regardless of operation type however, members typically hauled general food products (39%), albeit at a lower percentage than last year (45%, a 13% decrease). Although most members indicated that they were long-haul operators, meaning that their average distance hauled was over 500 miles, those pulling building materials and hazmat were principally regional, i.e. operating between 151 and 500 miles. Most members continue to drive in the north and south central regions of the United States. Figure 1: Operation by Region 4/10

5 In terms of compensation, per mile pay continues to be the primary method followed closely by percentage of line haul. This was generally consistent irrespective of operation, equipment pulled, or freight hauled with the exception of fleet owners and those hauling hazmat. These operations were compensated predominately by percentage. While the methods of compensation were similar across the various operational types, the rates were not as owner-operators under their own authority received the highest average compensation rate at $2.23 per mile. Company drivers on the other hand received the lowest at $0.45 per mile, a 4 percent decrease from All portions of the industry, with the exemption of company drivers, experienced an increase in pay per mile year-over-year. Again those under their own authority received the largest increase from $1.86 a mile in 2016 to $2.23 a mile in 2017, equaling an approximately 20 percent upsurge in pay. Members overall experienced an 11 percent increase in compensation from $1.54 per mile in 2016 to $1.71 per mile this year. Graph 5: Compensation per mile, /10

6 As the freight rates continued to rise through the mid and latter portions of 2017, so too did the professional outlook of the overall freight market. Whereas the various operational and equipment types indicated that freight rates were largely going down in 2016, the vast majority of members stated this year that rates were either staying the same or going up. Fleet owners were the most optimistic as 44 percent believed rates were on the rise, seven times more than last year. 51 percent of those under their own authority felt that they were in a better position to negotiate rates now than this time last year, compared to 21 percent in This positive trend continued for members receiving loads from freight brokers or a third party, and for those utilizing motor carriers or shippers. While members experienced an increase in freight rates and the number of loads hauled, the number of loaded miles they drove in 2017 stayed roughly the same as only 20 percent experienced an increase. This was also true for deadhead miles. The average member drove approximately 122,000 loaded miles. Those hauling refrigerated trailers appeared to incur the most miles at 184,000, while company drivers drove more than either owner-operators under their own authority or those leased on to a carrier. Company drivers also experienced the least amount of layover time between loads with 76 percent stating they are loaded the same day as when they unload. Leased-on owner-operators incurred the greatest amount of time between loads with 25 percent indicating that it took them 2 days or more. Graph 6: Freight Market Outlook 6/10

7 Although 53 percent of members stated that they were not in a better position to negotiate rates this year compared to last, this was still a marked improvement from the 2016 Survey in which 84 percent were not better equipped to negotiate rates. Moreover, while only 45 percent were able to include a fuel surcharge in their freight rates in 2016 with the declining diesel prices last year, 56 percent were able to include the charge in The average fuel surcharge was $0.29 per mile, an 11 percent increase from Graph 7: Negotiating Rates and Fuel Surcharge In order to obtain a better understanding of the current freight market, as well as to ascertain the accuracy of other freight indicators, OOFI posed three different questions concerning the average spot and contract rates as indicated by DAT Trendlines for the dry van, flatbed, and reefer segments of the industry. Although a majority of respondents stated that the figures published by DAT were either correct or even low, the members average compensation rate per mile was often below DAT s numbers with the exception of flatbed. Regardless, the table below demonstrates that DAT s Trendlines is an accurate barometer of the current freight rates across the trucking industry. Table 1: Accuracy of DAT Trendlines These The average spot and The average spot and The average spot and 7/10

8 figures are: contract rates for vans has been $1.54 and $1.73 respectively contract rates for flatbeds has been $1.86 and $1.97 respectively contract rates for reefers has been $1.82 and $1.92 respectively Far too high 5% 4% 1% Slightly high 11% 8% 6% Correct 33% 35% 39% Slightly low 20% 25% 20% Far too low 31% 28% 34% Conclusions and Economic Outlooks From 2016 to 2017, the members of OOIDA have seen a dramatic shift in the overall freight rates. In particular, the number of respondents who indicated that freight rates had dropped, decreased by 70 percent over the past year, combined with a 450 percent increase in those who stated that rates were improving. According to JOC, the current increase in overall freight rates might be caused by a number of different factors, including major hurricanes, a surge in manufacturing output and consumer spending, especially in regards to e-commerce, falling inventories, and a probusiness administration in the White House. Also, 2017 marked a major change in the federal government s regulatory agenda as several laws were taken off the books or modified. Graph 8: Rates are, At the close of 2017, nationwide dry van rates ended at $1.81 per mile, flatbed was $2.00, and reefer was $2.15, according to data from DAT. The dry van and reefer rates were the highest in any month since at least DAT began tracking the metric in The flatbed number was second only to the $2.02 per mile earlier in October. Additionally, while there was only one market in 2016 with more than 1 million van load posts on the DAT load board, there were 14 in 2017 with one even topping 2 million. 11 These factors coupled with tax reform, steady and sustained growth in real GDP, and high freight volumes have helped to create a positive outlook for the freight market in Projections of a trucking capacity shortfall next year abound as the economy grows more rapidly. The third quarter and early fourth quarter of 2017 saw available capacity tighten and spot market rates soar. According to a survey of 8/10

9 shippers and logistics service providers (LSP) by the Journal of Commerce, truckload capacity is expected to tighten considerably over In fact, truck capacity, both sourcing and securing it, was ranked as the top challenge among many for However, 63 percent of the shippers surveyed believed that overall freight volumes would remain flat over the next year. Despite this, a clear majority of shippers and LSPs expect contract trucking rates to rise over the next 12 months, with 66 percent of shippers and 86 percent of LSPs anticipating higher truckload rates. 12 Finally, we asked the members what their perception was concerning the prospects for the coming year based on their experience and professional opinion, to which 68 percent forecasted either better or similar prospects than Those respondents who projected the freight rates to improve grew from just 21 percent in 2016 to 34 percent in In short, the data from the survey creates a picture of a freight market ready to continue its positive momentum going forward, all of which has been confirmed with information from DAT, IHS Markit, and the Journal of Commerce. Graph 9: Prospects for /10

10 1. Bureau of Transportation Statistics, Transportation Statistics Annual Report 2016, Department of Transportation (2017) pg Sean Kilcarr, It s not a lock that good times lay ahead for trucking, Fleet Owner (March 17, 2017) 4. William B. Cassidy, US shippers racing to lock down truck rates, Journal of Commerce (Jan 19, 2017) William B. Cassidy, Truckers add tractors as demand spikes, Journal of Commerce (Nov 29, 2017) 7. William B. Cassidy, Demand tightens US truck capacity ahead of ELDs, Journal of Commerce (July 20, 2017) 8. William B. Cassidy, US trucking races to keep up with sharp demand rise, Journal of Commerce (Sept 27, 2017) 9. Truckers add tractors as demand spikes 10. William B. Cassidy, US shippers surface transport concern is capacity, not price, Journal of Commerce (Dec 27, 2017) 11. Ari Ashe, Spot Market on Fire Starting 2018, Data Shows: Atlanta Remains Hottest Spot for Moving Freight, Transport Topics (Jan 3, 2018) 12. William B. Cassidy, Shippers, 3PLs agree on US truck capacity, but not rates, Journal of Commerce (Nov 7, 2017) To purchase the whole 2017 Freight Rate Survey, please contact the OOIDA Foundation by sending an to FoundationDept@ooida.com 10/10