US Truckload Rates Drop Sharply in February , but Not LTL Pricing

  • US Truckload Rates Drop Sharply in February , but Not LTL Pricing

    US Truckload Rates Drop Sharply in February , but Not LTL Pricing

    A 9.7 percent drop in the long-distance US truckload producer price index (PPI) in the first two months of 2023 shows shippers are winning rate concessions from motor carriers that are rolling back some, although not all, of the surface transportation price hikes of the past two years.

    The data also confirms that the two primary trucking sectors — truckload and less-than-truckload (LTL) are taking different routes when it comes to pricing in early 2023.

    The PPI data released Wednesday by the US Bureau of Labor Statistics (BLS) showed all-inclusive truckload costs dropped 1.2 percent in February from January, after falling 8.6 percent in January.

    The PPI signals that truckload pricing and service contracts for 2023 negotiated late last year are kicking in, locking in lower prices. The truckload PPI is now 12.8 percent below its reading in February 2022, when it had nearly reached its historic peak.

    The truckload PPI rose 65 percent from May 2020 through March 2022 as carrier rates skyrocketed amid COVID-19 pandemic disruption and shortages. That was an unprecedented gain for an index that only rose 29 percent from April 2009 — the nadir of that PPI during the 2008-09 recession — through December 2019, its pre-pandemic peak.

    And although the truckload PPI is negative year over year for the second consecutive month, the drop in truckload costs hasn’t erased its 37.5 percent annualized increase from February 2021 to February 2022.

    The national dry-van average truckload spot rate is down 20.7 percent year over year so far in March, both with and without fuel surcharges, according to spot load board operator DAT Freight & Analytics. DAT’s national average contract rate, including fuel, is down only 8.4 percent from a year ago.

    LTL’s separate route

    Less-than-truckload (LTL) shippers haven’t seen a comparable drop in pricing, according to BLS data.

    Despite anecdotal claims some shippers are winning LTL rate concessions ranging from 2 to nearly 10 percent, the long-distance LTL PPI shows LTL costs fell only 0.6 percent in February from January, were up 2.3 percent from December, and were 8.3 percent higher than February 2022.

    The LTL PPI was down 7.7 percent last month from its peak last June, after climbing 39.5 percent from September 2020. From February 2021 through February 2022, the LTL PPI rose 12.1 percent.

    The tenacity of LTL rates has surprised some shippers, as LTL volumes are falling. Old Dominion Freight Line, the second-largest US LTL carrier ranked by revenue, said March 3 that LTL shipments have “largely stabilized” after dropping 10.1 percent year over year in February.

    “There has been a considerable increase in the proportion of truckload freight over the past several months, amid declines in less-than-truckload and intermodal volumes,” Cass Information Systems said in its latest Cass Freight Index report Tuesday.

    “This suggests freight is migrating to truckload from other modes, which fits with the robust growth in truckload capacity metrics, which have hardly started to slow at this point,” Cass said.

    Capacity glut continues

    Robust truckload capacity metrics are a reason truckload rates haven’t hit bottom yet, despite that suggested shift in volume from other modes. There are still plenty of trucks available to handle additional freight.

    “The fundamental reason truckload spot rates are still falling is there are too many drivers chasing too little freight,” according to the Cass report, authored by ACT Research.

    That’s despite an increase in the number of small carriers exiting trucking. “The decline in DOT operating authorities that started in October 2022 is evidence that the bottoming process is progressing,” Cass said. However, the freight payment firm also believes truck drivers are moving from smaller carriers to large truckload carriers.

    The number of registered, for-hire interstate motor carriers in the US dropped by 1,962 between December and February, the first decline after a massive surge in carrier licensing during the COVID-19 pandemic and spot-market “gold rush” of 2021.

    At 502,913 carriers, the number is still 47.2 percent higher than in December 2020, according to the Federal Motor Carrier Safety Administration (FMCSA).

    The Cass Freight Shipments Index, a measure of volume shipped by truck and intermodal rail, rose 3.8 percent in February from January, but the Cass Expenditures Index, a yardstick for shipper spending on transportation, fell 1.9 percent month on month, according to the index report.

    The Cass Freight Expenditures Index fell 9.7 percent year over year in February after rising 1.7 percent in January. “With shipments up 3.8 percent but total expenditures down, we infer that rates were down 5.5 percent month on month,” Cass said.

    Shipper transportation spending rose 23 percent in 2022, following a record 38 percent increase in 2021, according to Cass. The 9.7 percent decrease in February, similar to the drop in truckload PPI, signals contract rate savings for shippers.

    It’s not clear when the “bottoming process” in truckload rates will end.

    By: William B Cassidy / JOC

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