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Q1 2020 Coyote Curve Market Forecast

The Market Is Getting Tighter (Whether or Not It Feels Like It)

After six consecutive quarters of deflation, Q3 2019 marked a turning point in truckload spot rates (as detailed in our Q4 market update).

Though truckload capacity still felt plentiful, tender acceptance remained high and service levels held strong, the forces driving the market capacity cycle had already turned over, and the Coyote Curve® began its upward climb towards inflation.

Q4 2019 was a continuation of the same trend.



Though shippers have yet to feel the pressure of tight capacity, and many carriers have yet to gain relief from rising spot rates, the market continues barreling towards inflation.

We see nothing in our Q1 2020 outlook that will likely stop that prediction from coming true. In this U.S. truckload market guide, we’ll cover:


New to the Coyote Curve?

If you are new to the Coyote Curve, these resources will help you gain foundational knowledge about the U.S. truckload industry and the framework driving our proprietary forecasting model.

Having a solid understanding of both will add context to this update (and turn you into a truckload market expert).


Q4 2019 Recap: Spot & Contract Rate Trends

Spot rates are rising as contract rates continue to deflate. These two indexes will likely cross paths in Q1 and continue drifting apart through Q2, creating market disruption.



Spot Rates


For the 2nd consecutive quarter, the level of spot market rate deflation continued to decelerate, climbing even closer to equilibrium. To put it more plainly, rates are still deflationary, but less so.

In Q4 2019, our spot market rate index finished at -8.1%. Looking back to Q2 2019, which finished at -24.9%, the gap is clearly narrowing.

Compared to our forecast, the market was a little hotter than we anticipated, but, once again, we were directionally accurate.

Spot rates are still deflationary, but less so.

One of the most consistent trends of the market cycle is the duration of time between the trough and equilibrium (y=0.0%) — usually two to three quarters.

This trend will likely prove true again. We are on pace to return to year-over-year spot rate inflation during Q1 2020, which would close out the fourth observed cycle and begin the fifth.


Contract Rates


Though spot rates are on the rise, contract rates continued to drop, netting their sixth consecutive quarter of decline and their second consecutive quarter in negative territory. This is typical for this point in the cycle.

Contract rates are heavily influenced by recent spot market activity. Due to shippers’ annual bid cycles, they take longer to reset and usually trail spot market shifts by two to three quarters.

Though spot rates are on the rise, contract rates continued to drop — this is typical for this point in the cycle.

Compared to our forecast, the Cass index dropped a little less than we expected, registering -3.2% year-over-year versus our forecast of -5.0%.

We still haven’t confirmed a contract rate trough, and we could very well see a drop down to -5.0% in Q1, before making a turn upwards in Q2 or Q3.   


Do you have contract freight? Learn 7 steps for conducting a better transportation RFP to help set up your network for success during the next market cycle. 


Q4 2019 Recap: Supply & Demand Trends

Spot rates are still year-over-year deflationary, which indicates there is currently more than enough truckload capacity to cover freight volume — aka there is more supply than demand.

However, taking a closer look at the underlying dynamics reveals that the tide is turning.




Unfortunately, there is no index that clearly tracks the total number of active drivers in the massive, fragmented truckload market, so we use diesel to gauge the financial health of the nation’s carrier base.

Fuel, which accounts for anywhere from 20%-40% of a carrier’s variable costs, is far more volatile than other components.

Spikes and declines squeeze and expand carriers' operating profits. Both contribute to a carrier’s ability to absorb rate declines from shippers.

After dropping for six consecutive quarters, fuel’s decline leveled off and started to point upwards in Q4 2019.

If diesel prices continue trending towards inflation, it will apply further financial pressure to carriers, helping to boost spot market rates.

We also closely track class 8 tractor orders from ACT Research, which shows how many trucks carriers are planning to bring onto the road.

This index is a useful guide that shows how carriers feel about the market. It also helps us track the cycle of overshoot and collapse.



In short, when carriers view the market as attractive (rates high, capacity tight), they tend to order more trucks. By the time these trucks enter the market many months later, the cycle has usually peaked.

The influx of new trucks, whether carriers ordered them as replacements or net new, contribute to overcapacity, setting up the next leg of the cycle.

In 2018, a strong economy and corporate tax reform stimulated record amounts of new truck orders, followed by a collapse in orders by 2019.

This past quarter, the tide began to turn and orders started to pick up again. Though still negative year-over-year, the change in direction signals that carriers are feeling more optimistic about 2020. 




After three consecutive quarters of growth, the ATA Truckload Tonnage Index (our proxy for shipper demand) dipped down slightly in Q4, though still coming in at year-over-year inflationary levels.

This will be a key trend to watch throughout 2020, as a significant reduction in volume will impact how high spot rates go.

That said, a deflationary demand index and an inflationary spot index are not mutually exclusive (see Q3 2008).


Current State of the U.S. Truckload Market

After 11 quarters in the current market cycle, we are nearing the end of the fourth and (likely) about to begin the fifth.



Here’s a quick recap of the current state of our four key indicators:

  • Spot rates: currently deflationary, but trending upwards
  • Contract rates: currently deflationary, trending downwards
  • Supply (fuel): currently deflationary, essentially flat
  • Demand (truckload volume): inflationary, trending downwards


2020 Top U.S. Truckload Market Trends

There are a few trending topics and market forces that could impact the truckload market in 2020. Let’s unpack a few of them.



With the implementation of IMO 2020 and tensions in the Middle East, there is a lot of anxiety about fuel prices this year. Over the past several months it has remained relatively stable, but a spike would drive rates higher.


Carrier Insurance

Insurance premiums for truckload carriers have increased substantially over the past few years.

Though insurance payments make up a relatively small portion of a carrier’s overall operating expense, for some they are proving to be the straw breaking the camel’s back.

Rising insurance premiums by themselves won’t likely have a huge impact on overall carrier capacity as rising rates should alleviate some of their impact.



Transportation Regulations

There are a few key pieces of legislation related to the transportation industry in 2020, including California’s AB 5, the discontinuation of automatic onboard recording devices in trucks (AOBRDs), and the Drug & Alcohol Clearinghouse from the Federal Motor Carrier Safety Alliance (FMCSA).

Though none will have a substantial impact in Q1 2020, they could combine to contribute to tightened carrier capacity later in the year.

You can get more insight from UPS chief policy expert, Tom Jensen, in his post covering each of these three transportation regulations.

Long story short, between fuel, insurance and compliance with regulations, it isn’t getting any cheaper for carriers to operate in 2020.


Potential for an Economic Recession

The potential for plummeting truckload volume due to an economic recession is arguably the biggest concern for both shippers and carriers in 2020. It is also the biggest wildcard.

To learn more about likelihood of recession and how it would impact the truckload market, read our deep dive into the five key economic indicators we track to validate the Coyote Curve.


Q1 2020 Truckload Market Forecast

To summarize our 2020 outlook: inflationary, with a chance of recession. Whether or not we enter into a recession, we will have an inflationary spot market, likely by the end of Q1. 

Let’s go through a couple possible scenarios.


To summarize our 2020 outlook: inflationary, with a chance of recession.


No economic recession

If consumer spending continues to hold strong, it will pull demand up and we will likely avoid a recession.

Assuming this happens, and we have at least one major weather event and relative fuel stability, we would have a more pronounced market peak.

In this scenario, spot rates could inflate as high as 35% (similar to 2018).


If we have an economic recession

If the we enter into a recession and truckload volume significantly declines, we will still have an inflationary spot market, likely by the end of Q1, though the peak would be much lower (closer to 20%) and the duration will be much shorter (back to a deflationary market by Q1-Q2 of 2021).


Q1 2020 Coyote Curve Market Forecast


For a comparison, look to our first observed market cycle. The country entered the Great Recession in late 2007, where we remained until the second half of 2009.

Despite a tanking economy, spot rates went inflationary in Q1 2008 and stayed there until mid-2009.


Recession or Not, the Market Is Likely Heading Towards Inflation

Though the market might not feel tight, the spot market is likely to flip year-over-year inflationary by the end of Q1 2020, regardless of what happens with the economy.

Contract rates, on the other hand, will continue to fade lower for at least another quarter.

As the spot and contract lines cross, it will create market turmoil that could start disrupting routing guides — and potentially freight budgets — as carriers will have a better chance of making higher profits with available trucks in the spot market.



Preparing for an Inflationary Market

Whether you ship a few spot truckloads a month or hundreds of contracted loads a day, there are a few steps you can take to best position your supply chain for success in an inflationary truckload market.

For Shippers:

Read 4 Things You Can Do to Prepare and make sure you’re doing everything you can to out-ship your competition in 2020.

For Carriers:

Read How to Become a Carrier of Choice to get tips that will grow your business in any market.