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Monthly Forecast

August is a transitional month in the freight market. School starts and vacations wind down as people return to the office. This means shipping volumes tend to, if not increase, at least stop declining. The impact on rates is typically flattening to a slight increase. Labor Day puts upward pressure on rates towards the end of the month as well but that impact varies from year to year. Volumes have already started to recover: year-over-year comps are now showing positive growth for the first time in two months. The supply side is correcting as trucking failures are on the rise after two months of negative growth.

We are still early enough in the cycle for rates to be less sensitive to increasing volumes but shippers with retail exposure should be aware that no market is immune to increasing service requirements like the ones seen around holidays. Recent consumer confidence numbers (at eight-month highs) and personal income growth at 4.9% year-over-year also point to a healthy retail season.

Spot rates are 30% lower than last July but have found a floor in line with 2017 levels over the past few months. This is a sign that we may have found the bottom and any disruption as many smaller carriers exit will have a more significant impact moving forward. August has higher odds of hurricane formation in the Atlantic basin, which can push rates higher quickly. Black swan events excluded, we expect increasing upward pressure on market rates towards month-end as volumes trend higher.

Monthly Recap

July was a surprising month as volumes did not drop as rapidly or as deeply as anticipated. Volumes do not directly correlate with rates as they are only a measure of demand and not supply but they can contribute to rate destabilization. In other words, the higher volumes push, the higher the odds for increasing rates. Volumes fell along with rates through mid-July and then began to rise slowly. By the end of the month, volumes were averaging almost 3% higher than July 2018, the first time since early May that volumes surpassed 2018 levels.

Capacity was readily available after the holiday period. Rejection rates fell rapidly and found new lows towards the end of the month before recovering slightly. Capacity stabilized in all segments, including the temperature-controlled reefer segment, as produce movements slowed with the ending harvests in California. The livestock-heavy region around Missouri and Arkansas were still seeing some shortages but not to the extent seen at peak last month.

Business Intelligence Insight

As August commences, the only thing that is certain about the forecast for future market trends is that it is uncertain. Many analysts are claiming that the market has bottomed out and rates should recover through the end of the year. We almost certainly expect to see rates increase due to seasonal retail surges, but this is the norm in any year. The big question is whether or not those rate increases last, or will we see them fall again in the first half of 2020? Shippers will need to take a stance as they look to lock in contract rates for the next year. Those who prefer predictable transportation costs should act on the assumption that rates will increase YoY. Higher contracted rates could mean overpaying if rates drop off in Q1/Q2 of 2020 but would expose them to a much lower risk of losing capacity and needing to look to the spot market if rates increase rapidly for any reason.

Macroeconomics

Despite generally solid retail sales performance, retail employment has declined in each of the last five months. This suggests that traditional brick and mortar retail locations continue to face significant headwinds even in a healthy retail environment, as e-commerce dominates more of the landscape. The end-state of a growing e-commerce-centered retail sector has yet to be fully realized, though. Supply chains are still in the process of evolving. Customers are demanding higher levels of service, which means shippers are positioning goods closer to the end users. Warehouse demand is expanding as inventories remain relatively high months after shippers pulled record amounts of goods into the country. These two factors have the potential to combine for a volatile Q4, just as retail activity peaks.

Targeted Segments

Intermodal volumes on the rail are tracking with 2017 levels but are almost 5% off from last year. Intermodal volumes tend to correlate with imports as many of the containers get transloaded off the ports to the rail. The fact that volumes are in line with 2017 is a sign that the freight market is not as cool as it may seem, just cooler than last year which was abnormally hot. July and August are typically considered peak for international shipping volumes entering the country as inventories are built up leading into the Q4 holiday season. This is yet another sign that the expectation for late year retail demand will be elevated. 

A Message From Matt

Last month, Arrive Logistics celebrated five years of being in business. Since the beginning we have always focused on raising the standard of what it means to be a modern freight brokerage. Our first priority is to help you achieve your business goals. That is why I am thrilled to provide our customer base with exclusive market data on a monthly basis.

We are interested to hear how valuable you find this tool, so please feel free to submit any feedback using the button below. We look forward to being your partner in freight in 2019 and beyond.

Thank you,
Matt Pyatt, Co-Founder & CEO

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