North American Freight Market Insights

TOP STORY: The dog days of summer trucking

The summer trucking market continues to bounce along the bottom. It offers plentiful capacity and pricing that is not only challenging to the profitability and longevity of spot market carriers, but also to contract capacity carriers. Increasingly, carriers are citing pricing pressure and sporadic award volumes. The FMCSA continues to report some loss of carrier operating authority (albeit at a rate that is keeping the market over supplied) and small and medium fleet carriers are citing intentional contraction of their fleets to stay aligned with volumes. The national van carriers in Q1 reported 1.6% contraction in their active fleets. Since then they have been reporting continued efforts to contract the irregular route for hire capacity with focus on dedicated capacity for growth.

What follows in this section is our insights to the spot and contract markets, as well at C.H. Robinson cost per mile forecast for the spot market for both the dry van and temperature control segments.

Dry van is the largest segment of the truckload market. It is often the primary reference for the U.S. truckload market’s performance. For context, the dry van spot market has followed the somewhat normal seasonal tightening before the American Independence Day holiday on July 4, then was followed by normal seasonal softening post-holiday. Load to truck ratios (LTR) are still below the five-year averages of ~4:1, but are more balanced than they have been for some time.

The week 26 bump up leading to the 4th of July holiday in the USA settled back in weeks 27-29. Weeks 29-30 were slightly up, and following seasonal patterns weekly, both the 5-year average and the week 32 LTR dipped from previous weeks at 3.8 and 2.6 respectively.

Nationwide LTR took a dip following the July 4th Holiday that held through week 29. This is a normal seasonal shift post the holiday with both the 5-year national average. Weeks 30 and 31 moved upward in similar pattern to the 5-year average pattern with week 32 turning down against the 5-year pattern.

The 3rd quarter in the 5-year average LTR displays a steady slope downward until about week 33 when the 5-year average bounce around the 20:1 LTR. This years LTR is a rather historical low, and patterns with very little change. The current map displays very effectively that trucking is regional with the national average LTR so far below historical norms but the Southeast displaying some sustained balance. The week 33 LTR is at 5.6:1 with little change week over week. for many weeks now.

National averages are helpful for aggregate perspectives of the market. Trucking, however, is a very regional business. Each week displays the varying experience of the trucking market. Shown below is week 32, August 6-12, 2023.

Some markets are in balance, while others may be over or undersupplied, and other markets may have little trade and freight. The freight experience in each market influences truckload capacity strategy, and that experience will vary with annual cycles.

Sponsored research by C.H. Robinson with MIT's Center for Transportation and Logistics has shown that there are four primary market segments. Those being 'balanced' trade corridors, 'headhaul' corridors, 'backhaul' corridors, and 'sparce' corridors. Shipper freight attributes combined with the market segment capabilities shape capacity strategies from committed to spot market strategies. Connect with your C.H. Robinson representative to learn more about our Procure IQ^TM experience and our researched insights that can help develop a more capable truckload strategy.

Dry van displays a low level of tension across the United States. The produce season impact has largely completed its impact on dry van markets.

The national average is 2.6:1 against a five-year average around 3.8:1. Broadly speaking, spot market capacity is readily available in all markets when a day's lead time is offered.

Note the level of available capacity this year is plentiful, leaving the produce growing regions well supported. Produce growing markets at this time of year are The Southeast, Southern CA, Texas valley and Norther Mexico. National LTR average for week 32 was 4.2:1 range against a five-year average around 8:1.

Today’s flatbed spot market LTR continues to show prolonged regional tension in the south from Texas, eastward. Broadly, the flatbed market offers plentiful capacity for spot and contract services nationwide. Week 32 LTR's were 5.6:1 with a five-year national average of 23:1.

Most (75%–85%) of the U.S. for-hire truck market is moved through commitments most often managed via hierarchical route guides and dedicated truckloads. Most analysts are now offering that a material shift from 75% (some analysts suggested an even smaller share) of freight in the contract market in 2021 and early 2022 back to roughly 85% (some suggest a bit more) of freight in the contract market currently.

Companies commonly use waterfall (or hierarchical) route guides to manage awarded freight on lanes with some level of demand pattern predictability. The following insights are derived from TMC, a division of C.H. Robinson, which offers a large portfolio of customers across diverse industries throughout the United States.

Two key metrics of route guide performance are first tender acceptance (FTA) and route guide depth (RGD). RGD refers to how far into a route guide a shipper must tender shipments before carriers accept loads, or the average number of tenders per load. FTA is a percentage of how often the first awarded transportation provider accepts their shipment tenders.

These insights are from the week of August 6-12, and also reflect on RGD from the month of July 2023.

The regional view no longer shows the Northeast as the highest RGD region. The July North America average RGD improved less than 1% from June to July after a less than 1% drop in performance from May to June. The July average RGD for North America improved 11% (improved performance) compared to July 2022.

Week 32, offers an unchanged national average RGD of 1.14. All regions of the USA are experiencing similar route guide performance. This view of contract truckload route guides performing exceptionally well is yet another evidentiary point that the truckload market is at its bottom.

Overall, route guides are performing very well, with primary service providers accepting loads at pre-pandemic levels and the first backup provider accepting rejected tenders most of the time.

The chart above from TMC, a division of C.H. Robinson, reflects weekly RGD regionally across North America through the week of August 6-12.

• FTA in July was unchanged from June's 90%. The Y/Y comparison is 87% for July 2022.
• RGD broadly is rather stable, further supporting the reality of a well-supplied market.

Today’s market is flush with capacity. Load tenders from hierarchical route guides are typically accepted by the primary awarded supplier. When rejected, they tend to be unattractive to carriers for reasons such as unpredictable demand, short lead time, or known locations with high dwell event history.

A stable RGD performance for each of the three shipment distance bands continues. Route guide depth is largely at 1.1 to 1.2 depending on the distance band with short haul doing the best and medium distance loads showing the most first tender rejection and deepest route guide performance.

July's distance band performance (improved means better route guide performance and declined refers to more backup carrier use):

• Short haul (less than 400 miles) posted a declined in RGD of 1% from June and improved 8% Y/Y—about 1.1
• Middle distance (400–600 miles) improved less than 1% from June and improved 11% y/y. At 1.2 is the lowest RGD for July in the last six years.
• Long distance (over 600 miles) RGD improved by less than 1% from June to July and improved 12% y/y. At 1.15 it is the lowest/best RGD performance for July in the past six years.

Formally introducing our 2024 TL temperature control cost per mile forecast for an increase in average cost in 2024 by 18% over 2023. Refrigerated truckload market dynamics are similar to dry van and pricing follows a similar pattern. Typically, the refrigerated market runs a premium to the van cost per mile of about 20%. Below we plot the refrigerated truckload cost per mile without fuel.

Our Dry Van TL cost forecast of -24% in 2023 and +20% y/y in 2024 is unchanged this month, however the balance of supply and demand data is pointing to a more elongated truckload downcycle. While we have already right sized the 2023 forecast of -24% y/y growth to this environment, we think this exerts some downward pressure on the 2024 forecast of +20% growth y/y. We think the upturn in the truckload cycle could occur a little later than the very early 2024 that is embedded in the current forecast.

We still believe the volatility of truckload cost is increasing over time, resulting in a truckload cycle with greater amplitude. We can observe this in the chart below that shows historical DAT Linehaul Broker to Carrier Cost Per Mile going back to 2011 in navy blue. On the right you will see the CHR Linehaul CPM forecast for the 2nd half of 2023 and 2024 as a dashed light blue line. We can also observe the magnitude of the change in cost from the cycle troughs to peaks has been increasing since 2011. This is also reflected in the annualized growth rates of the peak vs trough trendlines. The peak trendline is growing at a 4.2% annualized rate, roughly twice the 2% growth of the trough trendline.

We believe there are 3 structural shifts in the industry driving the volatility that is increasing the amplitude of the truckload cycle:

1. Technology has enabled faster price discovery.Cost moves much faster to find its new equilibrium. Today there is a prevalence and increasing number of EDI/APIs, auctions, load boards, apps, and price benchmarking services.
2. Fragmentation of capacity pools means less capacity in each = more volatility. More load boards, TMS platforms, auctions, and other pools of capacity mean that there is less for-hire capacity in each individual pool. The technical term for this is liquidity, or how easy it is to facilitate a transaction. Less liquidity makes it more difficult to match a load to a truck, which drives a wider bid/ask spread.
3. Shift of active capacity away from for-hire to dedicated and private fleets The exact same dynamic as #2 above, less active capacity, but applied to the whole for-hire industry also drives more volatile pricing. This applies especially to Transactional freight markets as asset dedicated segments and private fleets don’t participate in transactional markets.

On the supply side, we believe the primary pain point is that class-8 tractor OEMs production levels remain elevated for this late stage of the TL down cycle. ACT Research has raised their forecast for growth of US class-8 tractor population in 2023 throughout the year from 2.3% in January to 3.9% in their August report. We believe this is also driven by #3 above, shift of capacity to dedicated and private fleets. These two segments are consuming more of class-8 tractor production. We noted last month that the Cass 2Q23 Freight Index shipment volume decelerated significantly to -4% y/y and this continued into July, with further deceleration to -9% y/y. The dynamic of Class-8 tractor production levels that are elevated and increasing, while freight volumes are declining probably pushes out the timing of the upcoming truckload up cycle by at least a few months.

When we look at the fleet statistics of the large public asset carriers their aggregate tractor counts peaked in 4Q22 and have declined 3% from that peak level in 2Q23. So, in aggregate they are rationalizing capacity at a slow pace. However, when we drill down and compare growth in their OTR/for-hire segments vs their dedicated segments, we see that growth in dedicated segments, over the same period has outperformed OTR/for-hire. JB Hunt has led the charge in this area decreasing tractor counts in their for for-hire segment (JBT) by 22% from 4Q22 to 2Q23 while increasing tractor counts in dedicated by 3% over the same period.

These two segments of the truckload industry, dedicated, and private fleets, don’t order trucks unless they will be utilized. This means shippers have decided to send more of their volume through their private fleets and carrier dedicated segments. This means less volume goes to for-hire segments. The bulk of this capacity shift however is in larger fleets, thus creating a need for the shipper community to increase dependence on smaller carrier capacity strategies.

Cost per mile forecasting

Forecasting the timing of the flip to the upcycle at this point is fluid with complicated variables and has a large impact on our 2024 TL cost growth. On the supply side while most metrics are moving in the right direction, the pain point for where we are at in the cycle, capacity rationalization, seems to be the key challenge to forecasting coupled with the pattern of strong retail sales of new class-8 trucks as outlined above. There is some debate around whether these high tractor production levels are just replacing older tractors in an effort to address the shortfall of production due to supply chain constraints during the pandemic. If we don’t see some combination of OEM production cuts, order cancellations, active capacity leaving the market, or a material uptick in freight volumes in the near term, the risk is that the freight cycle upturn could occur later than the early 2024 projection that our current forecast is based on.

DAT Rateview national dry van and refrigerated linehaul cost per mile is the broker price paid to carriers per mile, which excludes fuel surcharge. The C.H. Robinson forecast is an extension of that cost.

Like others, this forecast has been and will continue to be amended as economic forces shape freight volumes and the capacity community responds.

• The darker blue line is representing refrigerated cost per mile
• The lighter blue line is representing dry van cost per mile
• The solid blue lines are DAT Rateview’s broker cost per mile paid to carriers without fuel
• The dashed lines are the C.H. Robinson forecast for 2023
• Forecast change Y/Y is full year average cost/mile vs. full prior year average cost/mile

A final note on contract pricing

Contractual pricing remains low. If a shipper's contract pricing is exceptionally low, it is possible to experience some first tender rejections during the seasonal moves and higher backup pricing as the market experiences seasonal and regional pressures and year end market evolution.

The large portfolio of shipments C.H. Robinson handles is just one of the reasons carriers choose to haul for us. With so many load options, carriers can more easily find loads that decrease operating expenses. This in turn creates more capacity options for shippers that work with C.H. Robinson.

Diesel fuel retail pricing

With benchmark crude pricing up 21% over the past 6-7 weeks, diesel is also on the rise with wholesale diesel costs up 31% in the in the past three months. The recent run up has been influenced by Saudi Arabia and Russia cutting production in an effort to influence market supply. Analysts have also suggested that investor optimism about the economy has helped bolster the rise in oil prices.

Keeping with our opening theme on refrigerated transportation, it is notable that with the July and August heat waves refrigerated trucks are burning more fuel to keep products cold in transit.

In their August 8, 2023, Short-Term Energy Outlook, the EIA estimates June 2023 real retail diesel pricing at 3.89/gallon, up from June's 2023 low of $3.82 national average. For perspective, July 2022 was at $5.68. Finally, in March 2020, the beginning of the pandemic, diesel was $3.23/gallon.

The report also forecasted December 2023 at $4.21, a notable increase from the past few months forecast.

C.H. Robinson has two customer communities, shipper customers and carrier customers. What follows are insights from conversations with carriers of all sizes to offer perspective into their top concerns over the past month. Below is a summary of the reoccurring themes.

Market insights

• Carriers confirm market continues at over supply bottom
• Contract award volume commitments are volatile week to week
• Shipper score cards are being managed with increasing discipline

Equipment insights

• Increasing numbers of carriers cite downsizing fleets to right size against demand
• Trailer pricing is coming down as inventory grows
• Used tractor pricing is starting to decline some
• New tractor pricing has not declined

Drivers

• Hearing of more owner operators exiting the business
• Some smaller carriers mentioning small wage decreases

A key value proposition of C.H. Robinson is aggregating lane volume and demand pattern variability to a more predictable experience. Our carriers have more predictable volume from C.H. Robinson and as a result are interested and able to offer consistent capacity and market pricing with high performance.

Places where the global supply chain meets North American supply chains—like ports and airports—are also affected by the cyclical market and other disruptors. Below we offer some of the current notable situations.

Resumption of operations after the Vancouver / Prince Rupert work stoppage likely to create freight concentrations
Many of the containers that were backlogged due to the Canadian Labor Strike will move to Chicago, Detroit, and Memphis now that an agreement has been reached. Even more these containers are expected to arrive in a concentrated burst. This has the potential to overwhelm the terminals and chassis supply in those markets. Customers should be aware of the potential for increased accessorials including SSL Detention, Demurrage, and Rail Storage. Reach out to your C.H. Robinson representative if you have any questions/concerns as it relates to your routing guide(s).

• Carriers in Jacksonville have reported major backups in the Blount Island terminal, the Jacksonville market's largest terminal. It is due to higher container volumes and a construction project, causing congestion and a volume imbalance between Blount Island and Dames Point terminals. The construction project is expected to continue until the end of 2024.
• After a 3-month trial The Georgia Port Authority (GPA) has indefinitely suspended Sunday gate hours as of June 30th at the Savannah Port. GPA states declining volumes and not enough truckers taking advantage of the additional day open.

• NY/NJ – CMA shipping line is realigning the ports in the area. This has caused some moves to the NYCT (New York container terminal). This will cause an additional toll charge and diversion on every move from bridge tolls.
• Buffalo, NY – A large number of chassis have been pulled from service to be maintenance. This has caused a shortage of chassis at this time

• Cleveland/Columbus – Cleveland is experiencing timely and accurate information updates leading to challenges getting at containers at the Norfolk Southern ramp.
• Kansas City – We are seeing delays in the terminals for container flips and chassis providers pulling equipment from the market for repair and refurbishment.

• LA/LB – empty returns for MSC are subject to only dual transactions (empty in and full out). This requirement is exacerbated due to the shift in export volumes to the East and Gulf regions there may be increased difficulties related to equipment availability and capacity at ports and ramps in those regions.
• SEA/TAC – The PNW ports are seeing a significant slowdown due to the labor contract disputes. As a result of the slowdown, according to PMA (Pacific Maritime Assoc.), ships are sitting idle without being able to move cargo and causing a backlog of incoming vessels.
• Houston – A new container drop yard is providing the solutions many of our carriers have been looking for. The drop yard is a 75-acre off-terminal depot, directly adjacent to Port Houston's Barbour's Cut Terminal, offering a secure location for the storage and staging of containers.

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