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Freight Market Update – May 2024

Author: rwalter@arrivelogistics.com
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May Theme: Early Summer Shakeups

Freight Market Update - May 2024

Arrive Insights™

Arrive Logistics VP of Market Intelligence David Spencer Headshot
David Spencer
VP of Market Intelligence
Aryan Shah
Senior Research Analyst

Market conditions in April continued to follow typical seasonal trends. On the demand side, postings were up slightly, but overall economic activity remained flat. Capacity continued to exit the market at a moderate rate but was still sufficient to cover demand. Rates rose heading into DOT Week and should continue to tick up as we approach the 100 Days of Summer. Import trends were also encouraging again last month.

Our forecast for next month remains the same: Trends should follow typical seasonality, resulting in regional pockets of tightness.

Truckload Demand

Soft and
steady.

Truckload Supply

Regional tightness.

Truckload Rates​

Reacting to seasonality.

Multimodal Notes

Ongoing Mexico investment.

Cross Border

Rail strike
looms.

Capacity Outlook

Slow exits continue.

Volume Outlook

Imports look strong.

Consumer Sentiment

Healthy spending.

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Insights Delivered To You

Key Takeaways

  • Abundant capacity continues to elongate the ongoing downcycle. There are still 92,000 more active for-hire firms in the market than in July 2020.

  • Demand remains steady; DAT spot load postings are up nearly 7% year-over-year.

  • Import forecasts call for over two million TEUs monthly through the summer and into the fall, supporting OTR freight demand.

  • Rates hit new cycle lows in March and April but rebounded ahead of DOT Week and the start of the 100 Days of Summer.

  • Industrial production, consumer spending and other key economic indicators continue to influence freight demand and rate movement.

  • Recent CPI data showed cooling inflation. This could lead to lower interest rates, which should positively impact freight demand and rates.

Truckload Demand

What’s Happening: Demand remains soft but steady.

Why It Matters: Volatility will likely be limited aside from typical seasonality.

Soft but stable demand is causing some tightness as produce season continues and DOT Week winds down. However, relatively calm economic conditions should help mitigate any major upside or downside movement beyond typical seasonal patterns.

Accepted contract volumes have been relatively strong in Q2 and are currently up year-over-year. Overall volumes are also up 1.0% month-over-month when adjusted for tender rejections, driven primarily by 6.8% reefer volume growth.

Figure 1: Contract Load Accepted Volume, SONAR

According to DAT, spot market activity ticked up month-over-month and year-over-year in April, indicating a slight demand increase compared to the same period last year. Truck postings declined by nearly 19% amid ongoing capacity attrition and strong contract tender compliance.

Figure 2: DAT Trendlines

The Cass Freight Index shipments component is a good overall market health indicator because it encompasses both spot and contract freight based on bill data. The April reading showed a 1.3% month-over-month pullback (1.6% when accounting for seasonally adjusted terms) due to a soft for-hire market and volumes returning to cycle lows recorded in the second half of 2023.

Figure 3: Cass Freight Index Report – April 2024

Truckload Supply

What’s Happening: Capacity is showing some volatility.

Why It Matters: Shifting capacity trends could increase rate volatility during the summer.

Though tracking total capacity is challenging, recent load-to-truck ratios and the April Outbound Tender Rejection Index reading indicate supply and demand are moving toward balance, leaving the market more vulnerable to seasonal pressures. Routing guides will see increased challenges due to the improved market balance but will remain intact overall and return to baseline after the Fourth of July.

The latest Sonar Outbound Tender Reject Index (OTRI), which measures the rate at which carriers reject freight they are contractually required to take, confirms that the market is more vulnerable to disruption than a year ago. Trends are approaching what they were in 2020, meaning DOT Week and summer peak season could have a greater impact. However, recent rejection rate growth is unlikely to last beyond peak season due to the oversupplied market.

Figure 4: Outbound Tender Reject Index, SONAR: OTRI starting to move similar to 2020 trends, indicating that the market is slightly more vulnerable to supply and demand disruptions.

Figures 5 & 6: Van and Reefer Outbound Tender Reject Indices, SONAR: Dry van and reefer tender rejections were flat in March but have seen increases in early May.

The DAT Load-to-Truck Ratio measures the total number of loads relative to the total number of trucks posted on its spot board. The April reading rose to 3.54 on the van side, slightly higher than April 2023 and in line with April 2022. Reefer load-to-truck ratios remained relatively flat month-over-month and slightly elevated year-over-year.

Figure 7: DAT Van Load-To-Truck Ratio

Figure 8: DAT Reefer Load-To-Truck Ratio

The Morgan Stanley Dry Van Freight Index is another measure of relative supply; the higher the index, the tighter the market conditions. The black line with triangle markers on the chart provides a great view of what directional trends would be in line with normal seasonality based on historical data dating back to 2007.

The most recent reading showed a small demand increase relative to supply in April. Though a slight deviation from seasonal expectations, this aligns with DAT spot posting data. As DOT Week concludes, the index remains in line with the historical averages for this time of year. Reefer data shows a similar deviation but is almost identical to 2023 from a year-over-year perspective.

Figure 9: Morgan Stanley Dry Van Truckload Freight Index

Figures 10 & 11: Morgan Stanley Reefer and Flatbed Truckload Freight Indices

Truckload Rates

What’s Happening: Rates are rising ahead of the 100 Days of Summer.

Why it Matters: Rising rates suggest increased volatility in the coming months.

DOT Week spurred regional rate volatility, particularly for reefer capacity. It is unclear how high rates will rise, but based on 2023 trends, we anticipate a return to normal seasonality by July rather than a sustained disruption.

Truckstop’s Weekly National Average Spot Rates provide a detailed view of week-to-week movements and a real-time look into the current environment. Rates for all three equipment types are strikingly similar to this time last year, with van and reefer falling within just a few cents of 2023 levels. Given the year-over-year similarity of tender rejection and volume levels, rates will likely tick up this month, decline slightly in early June, and rise again around the Fourth of July and end of Q2. From there, rates should return to baseline levels as seasonal demand subsides.

Figure 12: Truckstop’s Weekly National Average Spot Rates

With the produce season underway, reefer spot rates rose more sharply than any other mode in May. All-in dry van and flatbed rates did not increase to the same degree, but with fuel prices down $0.02 per mile and $0.03 per mile, respectively, linehaul rates are slightly higher.

Figure 13: DAT Monthly Rate Trends

National diesel prices started to decline again in early May, with the average falling below $4.00 per gallon for the first time since January. Declining fuel costs benefit carriers facing financial pressure due to increased operating costs and low revenue. However, prices could increase again as summer demand ramps up and tensions in the Middle East escalate.

Figure 14: DAT Fuel Trends

DAT data shows dry van spot rates increased by $0.02 to $1.55 per mile in May, excluding fuel. Contract rates also rose by $0.01 to $2.00 per mile. While national data shows minimal rate movement overall, there is still volatility on a lane-by-lane basis, such as on outbound freight in the Southeast. On the contrary, inbound Southeast rates have decreased as carriers look to capitalize on opportunities in the region.

Figure 15: DAT Dry Van National Average RPM Spot vs. Contract

Reefer linehaul spot rates increased by $0.07 to $1.89 per mile in May, aligning with typical seasonal trends for this time of year. Contract rates were flat at $2.32 per mile, excluding fuel. Like dry van, some lanes were more volatile than others; rates out of California and other parts of the West Coast are rising, while inbound rates to the same region declined.

Figure 16: DAT Temp Control National Average RPM Spot vs. Contract

During the first half of May, flatbed spot and contract rates rose by $0.03 per mile and $0.02 per mile, respectively, driven by increased project-related freight demand for heavy equipment and commodities like steel. The gap between spot and contract rates remains large.

Figure 17: DAT Flatbed National Average RPM Spot vs. Contract

Market By Mode

Cross-Border Canada

What’s Happening: Market conditions look similar to last month.

Why It Matters: Rates held steady amid a surplus of capacity.

  • Inbound and outbound Canada rates remain relatively steady.
  • The impact of the carbon tax has been minimal thus far, but it remains to be seen how it will affect carriers facing financial pressure.
  • The potential rail strike still looms large over the Canadian market. All eyes are on the government as they determine whether or not the strike will be legal.
  • Certain shippers have proactively diverted freight to over-the-road trucks. If the strike is delayed or canceled, that freight will likely return to the rails.
  • In the near term, short-lived volatility is possible due to increased volume from the produce season, summer goods and Victoria Day-related demand.

Cross-Border Mexico

What’s Happening: Ongoing investment into Mexico is supporting increased freight demand.

Why It Matters: More production and manufacturing likely means greater demand for outbound Mexico freight.

  • The U.S., Canada and Germany were the top contributors to the record-breaking Q1 investment in Mexico. 90% of investment came from companies with an existing presence in Mexico, and 50% went to businesses in and around Mexico City.
  • Produce season is creating regional tightness. Inbound Bajio region rates are declining as outbound rates are rising.
  • The U.S. Dollar and Mexican Peso continue to trend down, negatively impacting carriers paid in USD.
  • The capacity surplus muted the impact of this year’s DOT Week.
  • New U.S. tariffs on China increased the maritime volume flowing to Mexico from China.
  • Northbound cross-border freight could have a significant upside should tariffs between the two countries remain or increase.

Figure 18: Inbound Ocean TEUs Volume Index, China to Mexico, SONAR

LTL Insights

What’s Happening: The LTL market is steady despite ongoing industry changes.

Why It Matters: LTL rates remain strong.

  • The National Motor Freight Traffic Association (NMFTA) met in early June to discuss potential changes to the National Motor Freight Classification (NMFC) and ClassIT, including consolidating several items.
  • Strong earnings reports from larger LTL carriers indicate healthy market conditions.
  • The latest Producer Price Index (PPI) from April showed that LTL rates were up 0.6% month over month and 8.2% year-over-year.
  • 97% of Yellow’s former terminals remain closed, presenting opportunities for ambitious carriers.

Temp Controlled

What’s Happening: Typical seasonality is expected as produce season continues.

Why It Matters: Regional volatility and rate increases are likely.

East Coast

  • The Northeast is showing some volatility but remains relatively soft. Tightening is likely following the Fourth of July.
  • Berries, watermelon and vegetables will start to ship out of the Northeast in July and August.
  • The Southeast remains tight with rates increasing by up to 35% on some outbound Florida lanes.
  • Tightness will increase in Georgia and the Carolinas from early June through the Fourth of July.

Midwest

  • The Midwest is soft amid low demand and ample capacity, but it could tighten in the second half of the summer.

South Central

  • Arkansas, Oklahoma and Texas continue to see temp controlled tightness.
  • Rates are rising in South Texas as northbound freight flows into the region from Mexico.
  • Oklahoma, Arkansas and Dallas are tight as meat and dairy loads ship out.

West

  • Northern California is tightening now that the Salinas produce season is underway.
  • Northbound Nogales remains tight as produce from Mexico moves through the region.
  • Yuma’s produce season is over, leaving the regional market relatively soft.
  • Fresno (citrus) and Stockton (cherries) will likely tighten as demand increases.

PNW

  • The region is and will likely remain soft until late August.
  • Washington will have a short cherry season from late June to late August.
  • The summer cherry harvest in Washington will not significantly impact the market but could drive rates up.

Open Deck

What’s Happening: Flatbed demand remains strong.

Why It Matters: Rates are rising on the heels of increased demand.

  • Rates are rising in line with typical seasonality.
  • Volume is steady as demand grows for construction materials, heavy machinery and other project-based commodities.
  • Steel production is slightly down, but Steel Belt markets (Memphis, Alabama, Arkansas, Oklahoma) continue to see some tightness.
  • Texas continues to see steady open deck demand as rates remain elevated.
  • Arizona and California remain loose as capacity is able to service demand.

Capacity Outlook

What’s Happening: The capacity surplus continues despite ongoing carrier exits.

Why It Matters: Ample capacity safeguards the market from disruption.

According to the latest revocations report, the for-hire carrier population has declined in 17 of 19 months. Though significant, the streak is still well short of The Great Recession, when the population fell in 28 of 30 months between October 2007 and March 2010. Despite the steady decline, there are 92,000 more active for-hire trucking firms today than before July 2020, when a massive wave of new carriers entered the market.

Figure 19: FTR’s Carrier Revocations, New Carriers & Net Change in Carrier Population

According to ACT Research, Class 8 Tractor sales have returned to replacement levels. While the for-hire market seems to have stopped adding to its fleets, private fleets continue to add equipment. However, increasing cost pressures and low revenues continue to strain carriers’ financial health, indicating that new tractor orders may continue to decline this year. Ultimately, this trend would create tightness and drive rates up.

Figure 20: Class 8 Orders vs. Spot Rates – ACT Research

FTR’s truck utilization forecast shows that utilization bottomed out during 2023 and will continue to increase in 2024. Capacity continues to exit the market, albeit slower than expected. As low revenues and high operating costs persist, the capacity exit rate could increase in the upcoming months.

Figure 21: Active Truck Utilization, FTR

Volume Outlook

What’s Happening: Import forecasts over the next few months remain encouraging.

Why It Matters: Consistently strong import volumes could drive increased truckload demand.

The National Retail Federation (NRF)’s import outlook remains positive for the summer and fall, with over two million monthly TEUs forecasted. The most recent (March) import data showed U.S. ports handled around 1.93 million TEUs, down 1.4% from February but up 18.7% year-over-year.

While the large year-over-year increase is encouraging, it is important to note that Asian exports were slow in March 2023 due to the Lunar New Year. Nonetheless, the optimistic import forecast indicates retailers continue to order merchandise to meet strong consumer demand.

Figure 22: NRF Monthly Imports

Aside from 2021 and 2022, April import levels have increased month-over-month every year since 2019. Additionally, April imports are 15% higher than before the pandemic, indicating continued economic growth. The percentage of total imports into the West Coast ports rose to 42.8% in April, while the percentage of total imports into the East and Gulf Coast ports fell to 43.9%. The top 10 ports had the largest month-over-month increase in over a year for the percentage of total freight, handling over 86% of total imports.

Figure 23: U.S. Container Import Volume 2019-2024, Descartes April 2024 Global Shipping Report

Figure 24: U.S. Container Import Volume, Descartes April 2024 Global Shipping Report

Consumer health remains strong overall. Industrial production increased by 0.4% month-over-month in March and was flat year-over-year. Manufacturing grew for the second consecutive month, increasing by 0.5% from February and by 1% year-over-year. While most indicators showed positive growth, housing starts declined by 14.7% month-over-month and 4.3% year-over-year.

Figure 25: Monthly Business & Economic Highlights, FTR

FTR’s latest truck loadings forecast calls for 0.3% year-over-year growth this year, down from 0.8% last month. The pullback comes on the heels of a revised flatbed growth forecast that now projects a 1.4% contraction compared to 2023. Dry van and reefer modes are expected to grow year-over-year by 1.7% and 2.5%, respectively.

Figure 26: Truck Loadings Summary, FTR

Consumer Sentiment

What’s Happening: Inflation is cooling slightly.

Why It Matters: If inflation data continues this positive trend, interest rates could fall.

April CPI data cooled to 3.4% from 3.5% in March, which may indicate interest rate cuts are still possible this year, but it is far from certain. Volatile energy costs like gasoline were the primary inflation drivers, while the cost of vehicles and some food items offset those increases. Housing inflation remained flat in April, which may concern policymakers who expected a better result.

Overall, the data is trending in the right direction. More positive readings could lead to interest rate cuts and drive freight demand. However, any near-term cuts are unlikely and could point to broader economic challenges. For now, the best-case scenario is sustained economic strength that allows for adjustment to higher interest rates and recovery in slow sectors.

Figure 27: New York Times Inflation Data

Bank of America card data showed a 1% year-over-year increase, with spending rising in the service and retail sectors, which should support a strong freight environment. Lower-income households’ after-tax wages and salaries increased, leading the growth rate to outpace middle and upper-tier income households. While encouraging, the cooling labor market could soon present new challenges, such as reduced spending on non-essential goods.

Figure 28: Bank of America Total Card Spending

Conclusion

Demand was soft and steady in April amid a surplus of capacity. Dry van and reefer spot rates reached cycle lows, and the spot-contract rate spread remained elevated, leading to increased tender compliance.

Despite healthy consumer spending and economic stability supporting steady demand, persistently low rates will continue pushing carriers out, leaving the market more vulnerable to disruption in 2025.

For now, normal seasonality is the most likely scenario. Shippers should prepare for tightness and elevated rates through at least the Fourth of July.

About the Market Update

The Arrive Monthly Market Update, created by Arrive InsightsTM, is a report that analyzes data from multiple sources, including but not limited to FreightWaves SONAR, DAT, FTR Transportation Intelligence, ACT Research, Morgan Stanley Research, Bank of America Internal Data, Journal of Commerce, Stephens Research, National Retail Federation and FRED Economic Data from the past month as well as year-over-year. We understand market data is vital in making real-time business decisions. At Arrive Logistics, we are committed to giving you the data and insights you need to better manage your freight.

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