US Truck Spot Rates Split on Oct 28: Van $2.24, Reefer $2.73, Flatbed $2.63

The Analysis

There is a stretch of Interstate 19 running north out of Nogales, Arizona, and those sixty odd miles carry most of the winter tomatoes and peppers eaten in the United States. Four hundred miles east of it, Interstate 2 runs out of the Pharr bridge at McAllen, Texas, and does the same work for melons, cucumbers and avocados. A thousand miles to the northwest, Interstate 5 runs up the Central Valley past Salinas, and in the last week of October the produce traffic on it starts moving south, because the Salinas season is finishing and the Yuma and Imperial seasons are starting. I have moved freight on all three of those roads, and they are the reason I read a truckload rate index the way other people read a weather forecast.

In the week to 28 October, per FTR and DAT, United States truckload spot rates went sideways and then did something they have not done for a while: the three equipment types stopped moving together. The blended rate fell 2.3 cents and still sits 41% above a year ago. Dry van was the outlier, up 2 cents on FTR and more than 48% higher year on year, while DAT's national van linehaul average eased 2 cents to 2.24 dollars a mile. Reefer broke a four year seasonal pattern, falling almost 6 cents on FTR though still near 42% above last year, at 2.73 dollars on DAT with loads down 5%. Flatbed shed nearly 2 cents to 2.63 dollars, still up 42% year on year.

Three trailers, three sets of roads, and for once they are telling three different stories. If you ship on one of them, only one of those stories is yours, and the blended number tells you nothing about any of the three. Put plainly, it is a road problem, and the road that matters is the one your freight is actually on.

Start with the number that will get the headlines, the blended rate down 2.3 cents, and put it aside, because nobody ships a blended trailer. A blended rate is an average of three markets being driven by three different things, and this week it is an average of one market going up, one going down, and one going down less. Its only use is to tell you that the average was quiet while the parts were not.

Then the detail that deserves more attention than it will get, which is that the two reputable measures of the van market disagree this week. FTR has dry van up 2 cents. DAT has the national van linehaul average down 2 cents, to 2.24 dollars a mile. Both can be right, because they are not measuring the same basket: one is a rate index built on its own lane set and its own shipper and broker panel, the other is an average of the linehaul rates actually transacted on its own exchange. When two honest measures of the same market point opposite ways inside the same week, the market underneath is not moving in one direction, and what you have is a set of lanes behaving differently rather than one national van market. If your van rate went up this week you were in the FTR lanes. If it went down you were in the DAT lanes. Find out which before you tell anyone the market softened.

The third figure is the reefer line, and it is the one that will decide your next month. Reefer fell almost 6 cents, which broke a four year pattern in which rates in this particular week of the calendar rose. It is still near 42% above a year ago at 2.73 dollars a mile, and load counts fell 5% in the same week. A rate falling while loads fall is not a market event, it is a demand event, and in the last week of October a reefer demand event means one thing: the produce is not moving the way the calendar says it should be moving.

Why this week, and why it is a calendar question rather than an economic one. The reefer calendar in the United States is fixed, and it is fixed by geography. Salinas and the Salinas Valley finish their lettuce and broccoli in late October. The desert growing regions, Yuma in Arizona and the Imperial Valley in California, start theirs at about the same time, and the traffic that has been running north out of Salinas turns east and south. On the Mexican side, the Nogales crossing starts building towards its winter peak in the same weeks, and the Pharr and McAllen crossings in south Texas are in their autumn build. That is not a rate pattern, it is a harvest pattern, and the four year streak the data broke was the market pricing the same harvest shift four years running.

When a market with a fixed calendar breaks its own calendar, the cause sits upstream of the rate. Either the harvest is late, in which case the volume is deferred by two or three weeks and the capacity idling right now will be gone by Thanksgiving; or the harvest is down, in which case the volume is lost and the capacity stays idle through December; or the volume came across earlier this year and the peak has already happened. Those three have opposite consequences for anyone with temperature controlled freight to move, and they are distinguishable, but not by looking at the rate.

The way you tell them apart is the load count, and the release hands it to you: loads down 5%. Watch whether that 5% turns around in the Nogales, Pharr and Yuma lanes over the next two to three weeks. If the load count recovers while the rate is still soft, you are looking at deferred volume and a temporary glut, and the 2.73 dollars you can book today is a rate that will not exist in three weeks. If the load count stays down and keeps falling, you are looking at a real demand loss, and the reefer capacity released by it will sit in the market through December and pull the rate further with it. Two readings, opposite actions, and the rate alone cannot tell you which one you are in. That is the part nobody writes.

The other thing nobody writes runs the other way, and it is about the van. The van number, up 2 cents on FTR and more than 48% above a year ago, is a port drainage number. Dry van capacity in the fourth quarter is consumed by import containers coming off ships at Los Angeles and Long Beach, Savannah, Norfolk and Houston, being pulled inland on chassis and fed into the holiday distribution network. When the van rate firms in late October while the reefer rate is falling, what you are watching is the import corridors tight at the same moment as the produce corridors are slack. Two different sets of roads, opposite directions, same week, and the reason the three equipment types stopped moving together is that they were never on the same roads to begin with.

If your freight is import driven and inland bound, the van firmness is your cost and the reefer softness is not available to you at all, because a reefer trailer cannot move your cartons and a van cannot be conjured out of a produce fleet sitting in Yuma. If your freight is temperature controlled, you have the mirror problem: cheap vans are no use to you, and the capacity that just got cheap is precisely the capacity you need, just not where you need it.

Now the arithmetic on one lane, and then the arithmetic that matters more. Take a 1,200 mile dry van lane, which is a real length: Chicago to Dallas, Atlanta to Denver, Los Angeles up to the Pacific Northwest and back down. At DAT's 2.24 dollars a mile, the linehaul on that load is 2,688 dollars. A year ago, with van rates about 48% higher now than then, the linehaul on the same load was 2,688 divided by 1.48, which is 1,816 dollars. The difference is 872 dollars a load on the linehaul alone, before a drop of fuel.

Add the fuel surcharge, because the linehaul does not include it and this is the trap in the whole market. Assume the fuel surcharge on that lane is 50 cents a mile today for a carrier running company trucks on a fuel heavy lane, and 35 cents a mile a year ago: those are assumptions, written down so you can argue with them. The 1,200 mile load then carries 600 dollars of fuel today and 420 a year ago, and the all in total on the load goes from 2,236 dollars a year ago to 3,288 dollars today, an increase of 1,052 dollars, or 47%. Spread it across the trailer. Assume 24 pallets in the box. That is 44 dollars a pallet, on the same lane, in twelve months. Move twenty loads a month on that lane and it is 21,040 dollars a month, for the same freight in the same trailer on the same road.

Do the same sum for the other two trailers and the shape changes. A reefer at 2.73 dollars a mile on 1,200 miles is 3,276 dollars of linehaul; a year ago, with reefer rates about 42% higher now than then, it was 3,276 divided by 1.42, which is 2,307 dollars, so the increase is 969 dollars a load. Flatbed at 2.63 dollars a mile is 3,156 dollars today against 2,223 a year ago, an increase of 933 dollars. So the three trailers are up 872, 969 and 933 dollars a load respectively on the same 1,200 miles, and the week's moves were plus 2 cents, minus 6 cents and minus 2 cents, which on 1,200 miles is plus 24 dollars, minus 72 dollars and minus 24 dollars a load. That is what a week of timing is worth on a reefer right now: 72 dollars.

The two things most shippers leave out of that sum are the ones that actually decide it. The first is that a spot rate is a one way number and your cost is a round trip. If your 1,200 mile load goes into a market with no outbound freight, the truck has to come back 1,200 miles empty, and the carrier prices the round trip into the move. Two thousand four hundred miles at 2.24 dollars, before fuel, is 5,376 dollars, which makes the effective cost of your loaded leg 4.48 dollars a mile, double the number you thought you were paying.

If the truck finds a backhaul at, say, 75% of the headhaul rate, that is 1.68 dollars a mile for 1,200 miles, or 2,016 dollars coming back, and the net cost of the loaded move falls to 3,360 dollars, an effective 2.80 dollars a mile. The difference between a lane with a backhaul and a lane without one is 56 cents a mile, or 25%, on the same physical road. That is what a corridor is: a rate is a property of the round trip, not of the lane printed on the load tender.

The second is that the reefer premium just collapsed, and it collapsed by exactly the amount it had taken twelve months to build. A reefer mile costs 2.73 dollars against a van mile at 2.24, a spread of 49 cents. A year ago that spread was 1.92 against 1.51, call it 41 cents. So the reefer premium over van widened by about 8 cents a mile over twelve months, and then this week van went up 2 cents and reefer went down 6, which takes 8 cents straight back out of it in seven days.

The whole year's widening is gone in a week. If you are holding reefer capacity on a lane for November, that is the number that tells you the capacity in your hand is about to be repriced, and which way it goes depends entirely on the load counts I mentioned. Do the same thing for flatbed and you get 5 cents built over the year and 4 cents removed in seven days, which is the same story told a little smaller.

Timing of each, because they run on different clocks. The reefer window is two to four weeks and it closes on the harvest rather than on the calendar: if the desert volume comes in late, the window simply moves, and the rate follows the loads rather than the date. The van window runs to the holiday delivery cutoff and then falls off a cliff in the second week of January, and it will fall hard this year because the 41% and 48% year on year numbers sit on a low base. That base effect is worth stating plainly, because it will mislead people for the next two quarters.

A year ago these rates were at a low point, so the year on year comparisons are measuring the recovery off that low as much as they are measuring this year's market. As the year ago base normalises through the first half of next year, the year on year number will fall on its own, without a single rate moving. Do not read a falling year on year print next spring as the market turning; read the cents.

The third clock is the one that costs importers and exporters real money, and it is the slowest. The spot market leads the contract market. What happens in spot in October is what your carrier and your broker bring to your next bid, and the bid that sets your rates for the following twelve months will be built on these levels. If you have a bid cycle in the first quarter, the numbers you should be negotiating against are the ones in this release, not the ones in your current contract, and not the ones in a blended index that averaged a rising market with two falling ones.

What to do with 1,200 miles instead. Intermodal is the obvious alternative and it works above a distance threshold, roughly 750 to 1,000 miles depending on the rail served lane pair; below that the drayage at both ends eats the rail saving, and above it rail starts winning properly. On a 1,200 mile lane pair that is actually rail served, intermodal will usually cost less and take two to four days longer. The traps in it are not on the rail, they are at both ends: the ramp cut off times, whether the terminal gate is open at the weekend, whether there are chassis where you need them, and whether your consignee can accept a container arriving on a day no truck can deliver it. Ask all four before you move one load, because every intermodal failure I have ever had to unpick was a failure at an end, not on the main line.

For reefer shippers the alternative is to buy the capacity while it is cheap, and the trap there is direction. Reefer capacity in produce season is cheap into the markets the produce is coming out of and expensive going the other way, or the reverse depending on which corridor you are on, and a reefer rate quoted to you as a single number is an average of two very different directions. Ask for it by direction. If you are moving into a produce origin market, ask again, because the truck that brought the tomatoes in will take your load out cheap and the truck you need to bring it back will not. There is a second trap in the same place, which is that a reefer trailer weighs more than a dry van, roughly a thousand to two thousand pounds more, so switching dry freight into a reefer to chase a soft rate costs you payload before it saves you anything.

The last trap is the one that will catch everybody in a quarter like this. The three trailers stopped moving together, which means the blended number in your carrier's quarterly review will tell you nothing about any of the three. Make them quote you by equipment type, by direction, and all in per mile including fuel, and then compare that against the same three things a year ago. Compare a blended index to a blended index and you will conclude the market was flat this quarter, and you will be wrong in one direction on vans, one direction on reefers and one direction on flatbeds, which is three wrong answers for the price of one average. The way this set of numbers lands in a landed cost model is Grace Yang's territory rather than mine, but the discipline is the same one she would apply: name the unit before you compare anything.

Then there is the border, because the reefer number is a border number and the border behaves differently from a lane. Nogales and McAllen are crossings, not just origins, and a three hour wait at Nogales is three hours off the shelf life of everything in the trailer, on top of the twenty four hours the load already spent getting there. If you are routing temperature controlled freight through a crossing in the next six weeks, build the crossing into the transit time as a variable with a range, not as a constant, and do not book a delivery appointment on the optimistic end of it. I have sat in that queue often enough to know the difference between the number the broker quoted and the number the clock showed.

So, does the road still work. The van road works and costs 872 dollars a load more than it did twelve months ago. The reefer road has a pothole in it right now and that pothole is 72 dollars a load wide this week, and it will either fill in three weeks or get deeper, depending on whether the desert volume shows up. The flatbed road is somewhere between the two, and at 2.63 dollars a mile it is still 933 dollars a load more expensive than it was. Every corridor has a story and a pothole, and this week the three corridors have three different ones, which is the most useful thing that has happened to this market in a year, because for the previous twelve months one average hid all three.

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— By Ömer Kaya