The freight recession is over. That 18-month malaise was triggered by the worldwide collapse of oil prices at the end of 2014. Energy exploration and fracking petered out, and the accompanying freight dried up. Fuel prices dropped, and carrier revenues fell due to the declining fuel surcharges. To add insult to injury, line haul rates fell, too, in a cycle of year-over-year declines that lasted through the middle of 2016.
Freight volume and rates finally began to revive in May 2016, and year-over-year volume comparisons turned positive in August. Instead of tapering off after October, as retail freight did in years past, a boom market emerged for truckload transportation in November and December. E-commerce was a major source of spot market freight for what is usually a quiet season, boosting truckload rates to a surprise peak in the last two months of the year.
A quick look at December's average rates, with year-over-year comparisons, confirms those trends:
Dry van rates rose by a penny, the first positive year-over-year comparison in a long time. Granted, some big markets like Atlanta and Dallas remained quiet this December. Instead, rates and volumes shot up in places like Memphis and Columbus, both associated with e-commerce fulfillment, and even Denver and Seattle exhibited unusually robust rates and shipping patterns.
Refrigerated van spot rates were nearly as high in November and December, at $1.95 and $1.96 per mile, as they were at the June peak of $1.98. Contract rates for reefers actually reached June levels in December at a national average of $2.12 per mile. For flatbeds, spot rates are slightly ahead of last year's levels, and contract rates are up by a full 6¢ per mile, compared to December 2015.
So rates have recovered, but that was 2016. Why the optimism going forward?
In addition to the surge in e-commerce, the U.S. economy has the potential to become stronger in a number of ways, as the Federal government transitions to a new administration. An increase in demand for freight transportation would be one result, if these new policy proposals are implemented:
This combination of political, regulatory, and economic factors should yield additional rate increases for motor carriers in 2017. Those factors will further accelerate the real momentum that has been building since the middle of 2016. That improvement has already led to declining unemployment rates, rising real wages for workers, and economic growth of almost 3% in the second half of 2016.
Oil prices are still a wild card. Can the U.S. economy grow domestic energy production without causing damage to the worldwide economy? Will a strong dollar and the prospect of renewed protectionism strangle trade? How will future tax cuts and/or infrastructure spending affect the Federal budget and its deficits? The answers to these questions remain largely unknown.
Rates in 2017
All in all, the likelihood of increased demand and reduced capacity should result in rate increases, in the low to middle single digits. Rates may go even higher if the ELD mandate removes significant truckload capacity by the third quarter of 2017. At that point, spot market freight pricing could become very interesting, as it is precisely the smallest fleets who will be the last ones to jump on the ELD bandwagon, and those small operators comprise the bulk of spot market capacity.
Advice for 2017: Plan for growth, but keep a close watch on various markets. As we have learned from the current freight season, it's not business as usual.
From everyone here at the Truckers America office, we want to wish you all a Merry Christmas, Happy Holidays, and a Happy New Year! We've grown so much over this past year and we hope to continue growing for you all! Hopefully next year can be a year of growth for all of you as well! Whether it's finding that right trucking job for yourself, or getting the right advice on how to handle your experience and situation, we're here to help you along the way. If you're home, enjoy the time with your family and friends. If you're on the road, drive safe and be sure to be respectful of others on the road, they all have their own family and friends who hope to have them home soon much like you. Thank you all for everything you do for us and our own families!
From our Truckers America family to yours, wishing you all a Happy and Safe Thanksgiving! We're grateful for everything you truckers do and for the family and friends that support you! Whether you're on the road, relaxing with some alone time, or spending time with family/friends, we hope you have a fantastic day and we look forward to continuing to help you find a better job to improve your quality of life!