North American Freight Market Insights

TOP STORY: Now is the time for focused strategy improvements

Truth be told, any time is a good time to reflect on your truckload strategy. However, today's market is an especially appropriate time to engage your top suppliers and plan for the next cycle shift. The next cycle will come, but the precise timing and what the experience will be is difficult to predict.

Four insights about truckload strategies

This month’s report will feature four insights about truckload strategies from the C.H. Robison portfolio of academic research. These insights are offered to help achieve better acceptance of tenders to the transportation provider ranked first in a traditional hierarchical route guide. Often, when tenders are rejected, backup providers and the spot market are used, introducing increased costs and potential service issues.

For a closer look at some of these strategies, check out our published white papers and watch for new publications featuring the latest research. Connect with your C.H. Robinson representative to discuss how these and other strategies may benefit your supply chain and transportation goals.

1. Smooth demand patterns when possible
   Research shows lane volume and cadence of shipments is correlated to acceptance. First tender acceptance will be at its highest when the demand pattern can be predicted by your primary awarded service provider.

   Today's truckload route guides are performing very well (see the contract truckload section below), but research shows that even in markets such as today's, lanes with the highest rejection of shipment tenders have a pattern of low demand predictability.

2. Segment your transportation portfolio
   The demand pattern attribute introduced above is one top segmentation strategy, another is the actual markets or corridors in which your freight travels. Corridors may be oversupplied, under supplied, balanced, or without a lot of trade.

   Segmenting your portfolio into the markets of contract and spot will help ensure the most predictable performance and best price in any market cycle. Talk to your C.H. Robinson representative about introducing you to Procure IQ™ and our experts can help with this process.

3. Rationalize your supplier base
   Research shows rationalized trucking supplier base of top performing suppliers will outperform a highly fragmented pool of suppliers. Use your supplier scorecards and strategic relationships to develop a resilient and top performing route guide and spot market strategy.

4. Maintain your route guide
   The best laid plan will be introduced to change. Supply chains evolve and with those changes so does the carrier network that planned on awarded volumes.

   As such, assets are not where they were planned to be and route guides can demonstrate some failure, even in a market like today. Research supports the effort to fix underperforming lanes by way of mini-bids or other similar approaches. This will yield a lower price paid than the results of the underperformance.

Spot market, committed market, and capacity insights

As reported last month, the spot market volume decline coincided with the return of drivers from COVID-19 related illness in the first quarter. Like any market, there is some week over week change in spot market volumes, but the pattern of change has narrowed since about week 13.

Truck postings have varied week over week and are slightly higher today than earlier in the year. Accordingly, the spot market has corrected and continues to offer a load to truck ratio (LTR) at the 5-year average with only minimal variation week to week since week 13. This is most evident in both the dry van and refrigerated segments.

Offered this month are national 2022 LTR averages by week with 5-year average comparisons. The following section displays the regional variances within a national average.

Dry van is the largest segment of the truck market. It is performing well in most markets across the country.

While the 2022 fresh produce harvest season is somewhat muted in the key growing market when compared to previous produce seasons, the national average continues its pattern of the 5-year LTR.

Today's flatbed spot market offers plentiful capacity in most markets with a load to truck ratio of about 15:1, well below the historical average of 26:1.

Regional LTR averages

Regional perspectives can help you understand and plan for optimal market performance. Shown here are LTR at the point of origin for the week of August 7–13.

Note how the colors indicate different ranges of LTR by each of the three truckload services. Some lanes from an origin may perform better or worse than the LTR might indicate. Our research and experience confirms that an origin-destination pair can have more or less attractive features to the capacity market than the regional average tension might indicate.

Dry van is displaying a great deal of yellow (3.4 to 6.9:1 LTR) with a national average of 3.6:1. Of note, PA has been experiencing significantly greater tension for several weeks in a row.

The national LTR at the 5-year average between 7 and 8:1 is showing some greater tension in the Midwest due to harvest season of fresh produce.

Today's flatbed spot market LTR of ~15:1 shows meaningful tension in the Southeast.

C.H. Robinson has been studying the impact of disruptive events and their impact on spot and contract truckload markets. Depicted here is the DAT LTR around the Labor Day holiday.

This is an 11-year average showing the days prior to Labor Day (depicted as L.D.) and the days after Labor Day. All days shown are weekdays. In all years, regardless of market tension the pattern shown is: Increased tension prior to the holiday, a slump at the holiday, tension returning, and then settling back to pre-holiday tension levels.

It would seem for this Labor Day, the market can expect performance similar to the average. The van spot market has been performing at the five-year average for LTR since week 13.

The experience is created by shippers putting additional loads into the spot market on Tuesday and Wednesday before slowing down shipping nearing the long weekend. There of course is not additional capacity, so tension increase is the result. And then tension declines on Thursday and Friday as both load and truck postings drop.

As in any industry, there is a percent of drivers/employees that extend the holiday weekend, and active capacity is reduced between Thursday and Wednesday the next week. So as shipping volumes ramp up on Tuesday and Wednesday after the holiday, tension is high, waiting for the full active capacity back in the market on Thursday.

This spot market experience also occurs in the contract truckload market. Route guides tend to underperform around the holiday for the same reasons of driver vacation. As proven in our research with MIT’s Center for Transportation and Logistics, lanes of higher volume and greater demand pattern predictability weather this and all holidays better than those lanes with lower volume and less demand pattern predictability.

The lower volume lanes tend to have the greatest exposure to rejection of shipment tender and end up being moved by carriers deeper in the route guide or in the spot market, both bringing price and service variance to the load/lane.

The recommendation is to be mindful of this market pattern and plan accordingly. As noted, this pattern occurs in soft and tight markets. The softer markets display less change than an average or a tight market, but still follow this pattern.

Most (75%–85%) of the U.S. for-hire truck market is moved through commitments most often managed via hierarchical route guides and dedicated truckloads. In 2021, the percent of freight in the contract market was on the lower side of this 10% variation.

With freight volumes settling and the apparent migration of talent and assets to larger carriers in 2022, it is likely that the percent of freight in the contract market is increasing.

Companies commonly use waterfall (or hierarchical) route guides to manage awarded freight on lanes with some level of demand pattern predictability. The following insights are derived from TMC, a division of C.H. Robinson, which offers a large portfolio of customers across diverse industries throughout the United States.

Two key metrics of route guide performance are first tender acceptance (FTA) and route guide depth (RGD). RGD refers to how far into a route guide a shipper must tender shipments before carriers accept loads, or the average number of tenders per load. FTA is a percentage of how often the awarded primary transportation provider accepts their shipment tenders.

These insights are from the week of August 7–13, 2022, and also reflect on RGD from the month of July.

The regional view continued to show the Northeast displaying the most challenging RGDs. With a national average RGD of 1.34, the Northeast pattern was above the other regions, which seems to be influenced by the states of Pennsylvania and New York. The Pennsylvania tension has been apparent in the spot market for over a month, while other regions continue to experience a pattern of stabilization.

Broadly speaking, route guides are performing well, with primary service providers accepting loads at or near pre-pandemic levels and the first backup provider accepting rejected tenders most of the time.

The chart above from TMC, a division of C.H. Robinson, reflects weekly RGD regionally across the United States through the week of August 7-13, 2022.

This is much improved from the lowest pandemic point of January 2022 at 79% and slightly better than June 2022 at 86%.

For some context on FTA and RGD, during the height of the pandemic, longer haul distances were being declined in favor of loads under 400 miles. Presumably, carriers were flooded with opportunity and were taking loads that aided in getting drivers home more frequently, which is a key influencer to driver recruitment and retention.

As freight volumes started to relax, transportation providers that were positioned as primary on a route guide started to accept loads at an increasing rate and across the distance bands and regions.

The freight market experienced lower volumes of spot market load tenders and capacity started to migrate back to route guides where freight is still plentiful.

Load tenders that are rejected in today's market tend to be those that are unattractive to carriers for one reason or another, such as:

• Low volume or variable demand patterns that make predicting the tender difficult. In these situations, capacity is simply not available within the tender specs due the preplanning of multi-leg routes in a week that most transportation companies construct.
• Historically excessively long dwell events at origin and/or destination.
• Price is below market. In today's market this is typically associated with a load that has unattractive attributes and requires a price above market to offset the issues with the load.

It is helpful to watch both FTA and RGD metrics. The contract freight market as displayed in these metrics is seemingly back to pre-pandemic performance. Additionally, with the spot market LTR performing around the 5-year average since week 13, it seems today's freight market has stabilized.

For July, all three distance bands experienced improvement in RGD as secondary providers increasingly accepted primary provider rejections. Info from the week of August 7, and pre-pandemic comparison offers additional perspective:

• Short haul (less than 400 miles) posted ~1.20 the week of August 7th. July improved 2% over June and 15% over July 2021. Performance has returned to pre-pandemic levels, which were in the 1.1 to 1.2 range.
• Middle distance (400–600 miles) is about 1.25 for the week of August 7th. July improved 3% from June and 32% from July 2021. Performance is much improved but this distance band continues to post the most route guide performance issues.
• Long distance (over 600 miles) is just under 1.25 for the week of August 7th. July improved 9% from June and 28% from July 2021. Performance is much improved, but this longer distance band continues to pattern with the middle distance levels and is apparently less attractive to carriers than the short distance band.

U.S. spot market dry van truckload rate per mile insights

Shown below is the C.H. Robinson 2022 truckload dry van spot market cost per mile index without fuel. Like others, this forecast has been and will continue to be amended as the economic forces shape freight volumes and the capacity community responds.

• The dark blue solid line is DAT's cost per mile to carrier without fuel.
• The blue dotted line is the C.H. Robinson forecast, bounded on the bottom by the estimated cost per mile to operate a truck.
• The revision for August brought the bottom of the market up a bit with July historical information applied.

When looking at previous market cycles, the cost per mile to operate a truck has been the bottom of the market. Then supply tends to contract, creating tension and pricing inflection. The length of time a market is at the bottom varies by the economic conditions and the level of oversupply.

For perspective, shown here is the spot market forecast. Analysts have offered contract pricing forecasts between 8–9% year over year (Y/Y) without fuel as carriers work to recover increasing operating expenses against optimized multi-leg routes from route guide awards.

C.H. Robinson will continue to apply its broad market costs and market experience to the forecast and continue to present updates on a regular cadence.

Diesel pricing outlook

As you can see in the below graph from FTR Transport Intelligence, diesel pricing plotted from the EIA forecast, will slowly decline but stay above $4/gallon through 2023. A nationwide average with the annualized 2022 cost per gallon at $4.81 is down from the nationwide average spike of roughly $5.50 with California the highest point in the nation at $6.27 in mid-June.

The national average price per gallon of diesel, for the week ending August 8, 2022, was at $4.993 according to the EIA, which follows multiple weeks of decline and revisions to the forecast. The visual below shows the expected downward trend toward the $4/gallon range in 2023.

With the forecasted decline in diesel pricing, the levels are still exceedingly high historically and will continue to be an increased cost for carrier operations where fuel surcharges don't cover repositioning miles, idle time, or out-of-route miles.

C.H. Robinson has two customer communities, shipper customers and carrier customers. What follows are insights from conversations with carriers of all sizes to offer perspective into their top concerns over the past month. Below is a summary of the reoccurring themes.

Market shifts

• Contractual pricing is holding better than spot market, with annual renewals experiencing some adjustments to a well-supplied market.
• High fuel pricing continues to impact smaller spot market carriers more than contract carriers with a high percentage of dedicated fleet loads.
• Dwell time of dropped trailers is again lengthening, causing rotation issues.

Equipment

• Carrier fleets have been aging as they wait for new equipment
• Carriers are starting to see some backlog orders of new tractors get delivered
• Parts for maintenance continue to be a significant issue keeping trucks and trailers off the road

Drivers

• Driver applications are on the rise, an increasing amount are coming from former owner-operators
• Home time continues to rank as high as pay in priority on driver applications/interviews.

Imports and inland transportation

Places where the global supply chain meets North American supply chains—like ports and airports—are also affected by the cyclical market and other disruptors. Here is a look at top influencers impacting imports.

Ocean dray at select ports

Savanna/Garden City, GA, has expanded operating hours
To aid in increasing truck turn times, the Georgia Port Authority has extended operating hours at the primary terminal in response to the 10.6% increase in truck moves in June year over year (Y/Y).

Dray capacity is plentiful at Charleston, SC and Jacksonville, FL
Sufficient dray capacity creates an ideal time to amend capacity strategies in these ports.

Chassis shortages create challenges for exporters
Many ports, including the following are experiencing long dwell for dray truck drivers:

• New York
• New Jersey
• Norfolk
• Cleveland
• Columbus
• Memphis
• Chicago
• Minneapolis
• Kansas City
• St Louis
• Dallas/Fort worth

Container shortages creating challenges for exporters
While limited to a few ports, these shortages make inventory challenging:

• New Jersey
• Detroit

U.S airport operations

Airports less challenged by COVID-19
While recovery times at U.S. airports remain elevated relative to pre-COVID-19 conditions, there have been fewer extreme delays as demand has softened since early 2022. Even historically challenging terminals at LAX are operating smoothly.

For an entire portfolio of insights, visit our Global Freight Market Insights or contact your C.H. Robinson account manager.