U.S. Truckload Market Update: July 2020

Coyote Market Update July 2020

 

After bottoming out in April, spot truckload rates and volume are rebounding, but increased COVID-19 case counts could prove a rocky road to recovery as some states halt their re-opening plans. 

6 Things for Logistics Professionals to Know This Month:

  1. Truckload spot rates are climbing higher.
  2. Though shipment volume is trending upwards, it's still lower than usual.
  3. Believe it or not, we could be on the way towards an inflationary peak.
  4. USMCA (NAFTA 2.0) takes effect. 
  5. Consumer optimism for a near-term recovery has taken a step backwards.
  6. The outbound California intermodal market is experiencing peak-like surges.

Let's dive deeper into each topic.


 

Truckload Spot Rates Are Steadily Climbing Upwards

We are now through two of the three holidays that define the summer shipping season (Memorial Day, 4th of July, Labor Day).

With most of the country opened up in at least some limited capacity, consumer spending is starting to increase, creating more demand from shippers. 

As a result, spot truckload rates have steadily climbed after hitting a floor during April — looking at the U.S. market as a whole, we experienced ten consecutive weeks of spot rate increases. 

Based on our historical data, we usually see spot rate activity cool down for one to three weeks after the 4th of July (on a sequential basis) before ramping back up in preparation for Labor Day and back-to-school shopping.

That held true this year for the week of July 6th, which saw a slight step backwards in spot rate activity. 

 

Volume Is Still Below Typical Levels

Though spot rates have been trending upwards, overall shipment volume is still down compared to typical during this time of year (by ~20%). 

Though we are starting to see some sectors of the economy pick up, with case counts on the rise in many southern and western states, that trend could plateau in the coming weeks. 

It's important to remember that spot rates are a reflection of the balance between supply (carrier capacity) and demand (shipment volume). It's possible to have low volumes and an economy in recession with an inflationary spot truckload market. 

 

 

Are We Headed Towards a Q3 Inflationary Market? 

We entered 2020 with the expectation of an inflationary spot truckload market in Q1. We had it, then the trend reversed as the COVID-19 pandemic took hold of global supply chains. 

After a severe downward blip during widespread sheltering-in-place, it seems we are back on the upward climb. In our Q2 Coyote Curve® update, we predicted we'd close out the quarter around equilibrium (i.e. 0% change in year-over-year spot rates). 

With Q2 in the books, we have ended up right around there, and early Q3 readings are pointing in a year-over-year inflationary trajectory. 

 

 

Though we haven't seen a lot of shippers' routing guides break down yet, that could be on the way if the trend continues.

All that said, market activity has been anything but typical this year, and as positive COVID-19 case counts shoot up, it could have a profound effect to spot market activity (reference March and April).

The next few weeks should better determine when we expect to see our inflationary peak — stay tuned for a more in-depth update. 

 

NAFTA 2.0 Takes Effect

On July 1, 2020, the US-Mexico-Canada Agreement (USMCA), a bipartisan retooling of 1994 NAFTA agreement, took effect.

Together, Canada and Mexico represent about 30% of all U.S. trade and combine to make U.S.'s the largest trading partner with a combined $1.225 trillion (split almost evenly between the two countries). 

Many trucking industry leaders praised the agreement; Chris Spear of the American Trucking Association said, “[the resulting] economic growth will be a boon to the American trucking industry —  which already moves 82% of the freight that crosses the Mexican border and  68% that crosses our border with Canada.” 

 

Some USMCA provisions that impact the trucking industry: 

  • A Mexican carrier cannot haul freight whose origin point both begins and ends in the US.
  • To be free from tariffs, 75% of a vehicle (which includes heavy-duty trucks) must be made in North America, up from the 62.5% required by NAFTA (this is expected to bring increased automotive production)
  • The U.S. can export the equivalent of 3.6% of Canada's dairy market, up from the existing level of about 1%
  • Targeted industries (such as cheese and wine) will be able to reach distributors throughout North America without many of the previous restrictions

 

See Coyote's Head of Mexico discuss how to balance cost, service and security in cross-border shipping in this on-demand webinar

 

Consumer Confidence Takes a Step Backward

Last month, 76% of Americans said they were optimistic about the next six months and the United States’ ability to find a treatment or vaccine, reopen the economy and resume normal activities.

Now, that number has dropped to 67%, as cases spike in many parts of the country. 

General concern about the virus remains high (85%) and say they are concerned about these surges in cases leading to a second wave (83%).

 

Here's a breakdown of what the American Consumer is doing:

  • 19% have already resumed their normal routine, without a mask or other protective gear
  • 25% said they have resumed their normal routine, with the use of masks and protective gear
  • 24% said they are resuming parts of their routine. 
  • 13% said they have considered resuming normal life but have not done so yet.
  • 19% said they would not consider returning to their normal routine at all until a vaccine or treatment is found.

 

Consumer spending is a leading indicator to industrial production, which is a leading indicator to truckload volume. All this adds up to a potentially bumpy ride until people feel empowered to resume more of their "normal" routines.

When and how that will happen will depend on case count reduction, and a treatment or vaccine. 

 

Intermodal Market Update

There has been a steady decline in domestic intermodal volume since October of 2019.

With (relatively) inexpensive diesel fuel and a deflationary truckload market, shippers opted for the speed of truckload over rail conversions as the rates were closer in many lanes. COVID-19 exacerbated the situation, with the low point coming in April.

To cope with lagging volumes and avoid terminal congestion, the railroads started to pull capacity from their network by stacking containers. For instance, the Union Pacific, (one of two major western railroads) parked 15,000 containers during this time. 

As businesses continue to reopen and consumers continue to shop online, we have seen a sharp recovery in volumes in the Small Parcel sector. As railroads move to unstack and reposition equipment to service ecommerce shippers (many of which are surging at Peak-level demand), there have been regional equipment shortages, namely in California. 

Long story short, if you are shipping intermodal out of California, make sure you communicate with your providers what your needs are, and find out if they're positioned to bring you the capacity you need. 

Learn the 4 things every truckload shipper should know before shipping intermodal. 

 

Need Help with Anything?

We are here to support you. You can get an instant freight quote or talk to a Coyote specialist, 24/7. 

Look for another market update in July. In the meantime, read more of our coronavirus resources to help your business keep moving forward.

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