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Monthly Forecast

Even with a stronger-than-anticipated December peak season, we expect January to give shippers a good bit of relief as seasonal volumes relax during what is traditionally the slowest month of the year for freight. Capacity will be abundant throughout the month, but it would be unwise to expect these conditions to last into the warmer months of 2020. There are signs that the overall direction of the market is turning. Traditionally, the two peaks of the year in the spot market tell you the direction of broader market conditions. The fall peak in 2017 was over 20% higher than the summer peak, while the fall peak in 2018 was over 16% lower as the market fell into oversupply. This year’s fall peak was a modest 2% higher than the summer value, suggesting we have probably seen the bottom of this cycle with rates increasing throughout the year.

Several supply-side factors support a tighter 2020 market, including but not limited to the final phase of implementing the electronic logging device (ELD) mandate that started in December 2018, the drug and alcohol clearinghouse reporting (starts Jan. 6) and skyrocketing insurance costs due to an increasing number of nuclear verdicts against carriers. Most of these will take time to manifest in the broader market but the second half of 2020 carries significant risk to shipping rates if demand holds.

Monthly Recap

The freight market’s second peak season proved to be the stronger of the two in 2019 with tender rejections and spot rates hitting their highest levels of the year around the Christmas holiday. Rejection rates pushed over 14% for the first time since the first day of 2019 when capacity was returning rapidly to what had been an extremely tight market. Volumes exceeded expectations, averaging almost 6.5% above December of last year. The loss of a full week between Thanksgiving and Christmas had an impact but November was soft in comparison to 2018 and the net gain of October through December volumes in the fourth quarter was minimal. The compressed shipping season, however, left its mark on the spot market, more so than anticipated.

Business Intelligence Insight

January’s arrival means retail peak season is winding down and the new year is bringing a new narrative on market conditions.

In 2019, excess capacity created an imbalance that resulted in a highly competitive market, driving down rates and favoring carriers that had taken an aggressive stance in acquiring contract business. The spot market very rarely saw tightness that resulted in sustained rate hikes and national averages were way down from the astronomical levels we saw in 2018.

In 2020, supply and demand are already much more in balance than they were a year ago. This was evident in the volatility we experienced in the weeks leading up to Christmas. The excess capacity that was so readily available all year was no longer there as demand increased. Many parts of the year, including early Q1, will feel very similar to 2019. Rates will be up slightly year-over-year but stable. The periods of time where seasonal and weather-driven demand surges will see more volatility in the form of greater and more rapid increases in spot rates.

While many shippers may already have their contract rates in place for 2020, we continue to strongly encourage those who still have the flexibility to focus on targeting capacity at fair rates with carriers who will honor their commitments through these periods of volatility in order to ensure consistent and predictable transportation costs throughout the year.

Macroeconomics

Retail sales annual growth (blue line) continues to be one of the stronger figures in the U.S. economy, reporting a 3.35% increase over last year’s figure in November. The National Retail Federation thinks this number will see an even stronger December print, growing between 3.8% and 4.2% year-over-year. The retail sector consists of consumer goods which drives almost 70% of U.S. GDP. Last December was disappointing in this regard to the point that many questioned the validity of the government’s figure which reported only a 1.4% annual growth number. While the actual figures may be in debate, a lot of data showed the economy slowing at the end of 2018, including trucking volumes. A sound retail environment is needed to make up for a weakened manufacturing environment which has been a drag on the economy all year. Looking at the above chart of the monthly Outbound Tender Volume Index (green line) and retail sales growth, truckload volumes move closely with retail growth with some separation in the late spring months when construction and produce movements are at their peak.

Targeted Segments

The crude oil market has been a target of much speculation over the past several months due to looming maritime fuel regulations. Starting in January, the International Maritime Organization will lower the amount of sulfur that can be present in the diesel fuel used for powering large vessels, including oil tankers and container ships, from 3.5% to 0.5%. The net impact is estimated to be somewhere around 1.5 billion barrels of oil per year. This is a dramatic reduction to global supply and could have a notable impact on the price of many crude derivatives. Transportation costs are expected to increase throughout the year as diesel supplies are reduced. So far there have been no strong indications of this happening but the price of West Texas Intermediate (WTI) crude has been on the rise since bottoming in early October, topping $60 for the first time since mid September when the oil fields were attacked in Saudi Arabia. This is a two-sided coin as the U.S. economy is now more closely tied to crude production which should translate to stronger economic conditions for the country but the cost of fuel and subsequent transportation will increase.

A Message From Matt

Since the beginning, Arrive Logistics has always focused on raising the standard of what it means to be a modern freight brokerage. Our first priority is always 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.

2019 was an incredible year for Arrive and I am very proud of everything we accomplished alongside our partners. You can see some of the highlights of the year here. We won’t be slowing down in 2020 and will continue to invest in what helps our partners grow.

As always, we love to hear from you about how valuable you find this tool, so please feel free to submit any feedback using the button below.

Thank you,

Matt Pyatt, Co-Founder & CEO

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