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Monthly Forecast

National freight markets were much looser this May than last year as carriers rejected just 4% of tendered loads. June will present more opportunities for the savvy shipper as carriers will be aggressively trying to make up for any potential losses resulting from a softer than anticipated May. The wild card is whether freight volumes recover swiftly and where they originate. Uncertainty around U.S. trade policy has already driven new pull-forward freight north from Mexico and has the potential to distort markets in the Southwest and Southeast. Even though conditions are optimal for shippers at the moment with readily available capacity, the pendulum can swing the other direction quickly in what is typically the hottest month for freight in terms of volume.

We don’t think using last year’s data to forecast expected trucking prices will be helpful, but basic seasonality should still be predictive of the general direction of rates. National volumes increased roughly 1.67% after Memorial Day to peak in late June in 2018, with a lot of the increase occurring in the third week of the month. We expect a similarly shaped pattern this year, albeit at a lower magnitude. Shippers need to see a decent increase in volume as the long-term impact could mean another 2017 moment when the market shifts again. Market volatility to the low side is just as difficult to manage as it is to the high side since capacity has already started bleeding out of the market.

Monthly Recap

May volumes came in well below expected levels largely due to increasing uncertainty over trade relations with China and contracting durable goods orders. Volumes had been relatively flat heading into mid-May but once the tariffs were put in place, volumes dropped significantly. This drop was doubly impactful to the market as volumes dropped in a period when they are normally increasing, leaving an abundance of capacity when there is normally a tightening. Volumes did recover slightly heading into the holiday weekend but carriers took a big hit to their revenue potential this month.

The combination of low volumes and loose capacity has not fully played itself out yet. The long-term impact of these softer-than-normal weeks means capacity will begin to correct in the coming months if volumes do not recover quickly. Volumes averaged 7% to 8% off 2018 levels after May 10; prior to the tariff increase volumes were averaging 0.21% above the previous year, which would have supported a relatively stable market for the near-term.

Business Intelligence Insight

Year after year, the transportation markets experience disruption between Memorial Day and July 4th. Typically, we see a sizeable increase in Dry Van rates due to an increase in demand for Dry Van services. As a shipper or a carrier, knowing how to prepare for or react when the rate increases hit cannot alone allow for cost savings or increased revenues. Making the right strategic decisions can set you up for more sustained success once the markets cool down in mid to late July.

As a shipper, the most obvious exposure during this disruption is the risk of increased transportation costs. Whether you have found yourself way down the list on your routing guides, or the summer season means you are one of those businesses in peak season and you require support outside your agreed upon contracts, the increase in costs might be inevitable. Look at these market conditions, which we believe will only persist through early July, as an opportunity to identify the carriers in your network that you can trust. If carriers are quick to turn down loads they have committed to moving in order to chase higher paying loads, it might be a good time to start sourcing other service providers who will hold their commitments as the market goes through its normal cycles.

Macroeconomics

Industrial production growth continued to soften in April with little sign of course correction. This is a sign the freight market may be in for a double hit, as most of the durable goods come from overseas. With less coming in from China and less being produced in the U.S., carriers will be forced to adjust rapidly if nothing changes soon. Manufacturing growth was negative for the first time since late 2016, meaning the economy, at least on the hard durable goods side, is weakening for the first time in two years. None of this has been reflected in employment, as the unemployment rate dropped to its lowest value since the early 2000s at 3.6%. So there are still some mixed signals about the overall state of the economy.

Targeted Segments

Produce season has been uneventful so far. Rates are averaging 16% lower than last year. A wet California winter has delayed harvests. The risk to shippers for any capacity disruption will be lower out of California this year due to the glut of capacity available with all the imported freight volume pulling carriers into the region over the winter. Any shippers looking for temperature controlled equipment will still be at risk if the harvests are delayed much further, as carriers will be forced to move out of the region to keep utilization elevated. This is reminiscent of 2017 when rains moved the harvests out over a month, well after carriers had moved to the East Coast. Once the harvests began in earnest, they returned out west and abandoned their East Coast obligations, spiking spot market rates for all modes.

A Message From Matt

Arrive Logistics has 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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