Transfix Take: Weekly Market Update (July 12)

The midweek market update is a recurring series that keeps shippers and carriers informed with market trends, data, analyses, and insights.

Transfix Take Podcast | Is Summer Heating Up the Supply Chain?



Jenni: Well, hello and welcome to an all-new episode of the Transfix Take podcast, where we are performance-driven. It's the week of July 12, and we are bringing you news, insights, and trends for shippers and carriers from our market expert, Justin Maze. Maze, it is always great to be with you. How's it going?

Maze: Hey, Jenni, it's great to be back with you as well this week for a long stretch of summer without any holiday disruptions until Labor Day weekend.

Jenni: Well, Maze, let's not get too comfortable. You know how it goes. We blink, the summer's gone, so let's just enjoy this nasty heat and maybe even a sale or two?

Maze: That's right, Jenni. Today is the first day of Prime Day, and to be honest, I don't believe we're going to see too much disruption brought on by Prime Day in the full truckload sector or even the LTL or partial sector. But as you mentioned last week, we're going to keep an eye on where potential stress points may appear within transportation.

Jenni: I agree with you, Maze. I really am not expecting it to be a huge market shift or really anything to write home about, but what I am looking at is consumer behavior. Any shifts or trends towards the holiday season, especially as we continue in the soft market.

Maze: That's right, Jenni. The market is continuing to soften at a national level, but it's not seeing the declines that we experienced last year from the Fourth of July holiday to the following Monday. This year, we've only witnessed around a two-cent decline in rate per mile line haul compared to last year, where on the Monday following the Fourth of July week, we saw nearly a ten-cent decline in average rate per mile on line haul. So we are still seeing the market soften, just not at the same level or speed as we experienced last year.

Jenni: So, Maze, there has obviously been a shift over the last couple of years, but this year seems to be the anomaly. Are you expecting somewhat of the same type of behavior?

Maze: Well, Jenni, I actually do believe it's still going to follow a similar pattern to what we experienced last year. We will likely see a leveling off, but we're still pretty far from the bottom we saw back in the first half of May, and I don't think there is any opportunity for shippers to get rates back to that level.

Jenni: And this is not the norm. Let's not forget shippers have had control of the market for quite some time now, probably close to three quarters, and we're shifting over to the carrier side of a flip. Maze, what are you looking out for?

Maze: I would say the one thing that's really catching my eye is that every time we've come across a slight tightening in the market due to some regular holiday volatility, the market has continued to level out and not drop back to where rates were prior to the holiday. We saw this Memorial Day weekend, and we're seeing it yet again with the Fourth of July weekend. This is something I'm going to continue to watch carefully. I do, however, believe that we will see the national average rate go back to where it was prior to the Fourth of July holiday and potentially a little bit lower. But this is something, again, to continue to watch because if it does not decline back to where we were prior to the holiday weekend, then it's a clear sign that we are past the rough parts of this cycle.

Source: Freightwaves

Jenni: I would hope so, Maze. I think there have been a lot of indicators that prove we've reached the bottom, but what say you?

Maze: That's right, Jenni. There were a few signs pointing to the bottoming of the freight market, and we're going to be in a steady, stagnant market for the next month and a half with a still unknown fourth quarter. But one of the big callouts is that in Q2, we saw the net loss of trucking firms set a record. And that is a big call out because that is capacity A) leaving the industry or B) running under larger asset fleets. Either way, we are seeing some tightening in the spot market as contract rates continue to decline. And as we know, as the gap between contract and spot lessens, there is more opportunity for volatility to appear in the market heading into Q4.

Jenni: And not only that, but all eyes are on volume and where that stands as we continue through Prime Day, through a bunch of other competing retail sales throughout the summer, and then, of course, as we head into back-to-school and holiday season. That said, Maze, you know what? It's time for the regional breakdown. Now, I know we want to give shippers a little bit of a leg up here, so why don't we start in a market that's more favorable to them, the South and some of the larger markets, Dallas, Fort Worth, and Houston?

Source: Transfix

Maze: These markets saw a nearly 3% decline in the average rate just from last Monday to today. Now, moving on to the West Coast, a region that we've continuously watched carefully and called out the beginning of a flipping market as rates declined going into last week, we are seeing this trend continue. Rates out of Southern California and other larger markets in California are seeing more significant declines. Take Los Angeles, for example, where we saw rates on average decline right around 2%.

Jenni: Okay, and what do you think these are indicators of, Maze?

Maze: These two examples, Jenni, are perfect examples of a changing seasonal trend that we traditionally see in the industry, as we've been calling out for months now. This year, we are certainly going to continue to see the seasonal trends stand out, even if they are a little less volatile than we've seen in the past years.

Jenni: I know I geek out when we talk about seasonal shifts like this, but this is definitely something to keep an eye on. Now, why don't we drive on down to a market that has already flipped? The Southeast.

Maze: Rates out of even the largest market, such as Atlanta by volume, saw rate decreases since last week. Nearly 3% out of Atlanta, Georgia. And Florida continues to move in the shipper's favor as rates have declined out of every market in Florida and in the entire Southeast.

Jenni: Things are definitely moving along. And you know what I want to bring up now? The Coastal region. What's going on there?

Maze: Just about every market, except for Norfolk, Virginia, saw declines from last Monday to today. And the largest markets by volume, similar to what we're seeing in other regions, are showing large decreases. When these large markets by volume are showing larger rate decreases, that points to me that we are going to continue to see this trend going into next week, and it will also have that domino effect on the smaller markets that move less volume.

Jenni: Now, I know the same cannot be said about the Northeast and the Midwest, so give us a breakdown of what we can look forward to there.

Maze: It's normal that around mid-July, going into August, we see the Northeast and Midwest tighten, and it's certainly taking place in the Midwest. Rates saw a very slim decline since last week, which you would expect coming off the holiday week. But the larger markets by volume are still seeing tightened capacity and slim increases out of these larger markets by volume. And although I do believe rates will continue to see a slim decline in the next few weeks, it's not going to be nearly as noticeable as it is in the other regions we mentioned. Now, the Northeast is a slightly different story. We are seeing some markets tighter than others, but the largest markets Harrisburg, Pennsylvania, and Elizabeth, New Jersey, are volume drivers in the Northeast and are continuing to see some softening with decreasing rates. Now, other markets in the Northeast are actually seeing increasing rates. So the Northeast is going to be one of those stubborn regions, similar to how the South was for a few months, where we're going to see rates fluctuate week to week, depending on the demand and capacity.

Jenni: All right, Maze, so let's talk about carriers and where they fared out in terms of this last holiday with July 4th. Were they able to take advantage of it? What was it looking like on their end?

Maze: That's right, Jenni. Carriers were able to take advantage of the holiday week and push rates upward, but as expected, they are declining, and we'll continue to see a decline in the next few weeks. Now, at the same time, carriers are now facing an increase in diesel prices as well. This week, we saw diesel increase for the sixth time this year. Additionally, this was the largest increase experienced since January, but we are still $1.70 below the levels of this time last year. So not only is the freight market loosening for carriers, unfortunately, but diesel prices are rising. So it's something to continue to keep an eye on because we want to make sure that more capacity doesn't leave the industry. Otherwise, that spot-to-contract gap is going to lessen at a quicker speed, bringing volatility into the contract market.

Source: Freightwaves

Jenni: That's right. And we know that diesel price increases tend to put the smaller carrier out of business, so we're hoping that they get some relief there, especially as quickly as possible given the market. But why don't we shift gears a little bit and broaden out to the greater supply chain and what's going on there, Maze?

Maze: That's right, Jenni. It's also important to call out imports, and we haven't talked about imports for quite a while, and I'm going to take a more broad view. And I'm actually shocked to see that imports are still outpacing the performance year to date that we saw in 2019. I don't think this has had a significant impact just yet on the freight market, but it's something to keep an eye on. Imports do drive the truckload demand in the United States.

Source: Freightwaves

Jenni: So, Maze, I know we haven't really broached this subject quite yet, but there is an elephant in the room. Do you want to address it?

Maze: One thing I'm keeping an eye on is the impact of the UPS situation we have going on because the Teamsters' contract ends on July 31. That's just a little over two and a half weeks away, and this is something extremely important to watch out for. Even though this is for the partial segment of transportation, it could have more impact as a domino effect across different modes of transportation. So I do think that there's going to be a deal reached, but in the case that there is not, this will certainly have an impact on supply chains as UPS is one of the largest carriers in the country.

Jenni: Well, as JOC's Cathy Roberson said, "it is the year of the union," so we are definitely going to see what's happening with them in the coming weeks. But, Maze, always a pleasure talking to you.

Maze: Jenni, it was great talking to you today as well. I love taking a look under the hood at the freight markets, and I'll see you next week.

Jenni: That's right. Same time, same place. Everyone drive safely.


DISCLAIMER: All views and opinions expressed in this podcast are those of the speakers and do not necessarily reflect the views or positions of Transfix, Inc., or any parent companies or affiliates or the companies with which the participants are affiliated and may have been previously disseminated by them. The views and opinions expressed in this podcast are based upon information considered reliable but neither Transfix Inc. nor its affiliates nor the companies with which the participants are affiliated warrant its completeness or accuracy, and it should not be relied upon. As such, all views and opinions are subject to change.