North American Freight Market Insights

TOP STORY: Capacity availability is resulting in high performance for Spot and Contract markets

As the truckload market sits in an oversupplied state, now is an outstanding time to revisit truckload strategies. Revisit your approach now to enable the best experience in today’s market and the forthcoming upcycle.

Use the following information related to both the spot and contract markets to review and enhance your current strategies.

Consider how the spot and contract markets interplay. Recent research sponsored by C.H. Robinson with MIT's Center for Transportation and Logistics (MIT-CTL) found that hierarchical route guides for awarded truckload freight tend to have limitations based on market condition.

In very tight markets, the route guides break down at the fourth backup carrier with the subsequent tenders largely rejected and eventually the tender is covered in the spot market. In a loose market like today, rejected first tenders are typically covered by the second carrier. Consider a digitally enabled spot market strategy between the second and fourth backup provider.

Previous research shows the true cost of route guide erosion, failure, and reliance on the spot market. Luckily, today's digitally enabled spot market strategies can lace the spot market into your route guide. This means lower operations costs, faster access to the spot market, and reduced shipping rates. Work with your C.H. Robinson account manager for strategies that enable the best performing route guides and access to the spot market.

Spot market, committed market, and capacity insights

The truckload spot market is generally considered to be 15–20% of the for-hire trucking market. Today’s market cycle position has most analysts suggesting the spot market total volume has moved back to the 15% range of the market due to the capacity available to the contract market at this time.

The spot market for truckload has developed a pattern below the 5-year average for LTR that is expected to persist for some time, contributing to the “over supply” experience of today’s market.

In general, the hypothesis is that capacity has mostly been shifting from owner-operators to the shelter of employment within larger carriers rather than a large exodus of capacity. The market has the near-term possibility to inject more capacity as carriers take delivery of back-ordered tractors. It is unclear how much capacity has exited the market.

Small carriers that are struggling may need to declare bankruptcy and then reincorporate as a DBA. Other capacity may return to its pre-pandemic status of lightly used or parked. These migrations of talent and capacity make for a fluid environment that is difficult to precisely measure.

The first set of figures below shows the current truckload spot market LTR with the five-year averages. Of late, today's market is trending below the five-year average, which is one indicator that suggests the market is oversupplied.

Dry van is the largest segment of the truck market. It is performing strongest against the five-year average in most markets across the country.

Refrigerated truckload continues to offer some regional tension and slack but has established a long pattern below the five-year LTR.

Today's flatbed spot market continues to offer plentiful capacity in most markets with LTRs well below historical 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 45, November 13–19, 2022.

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 confirm that an origin-destination pair can have more or less attractive features to the capacity market than the regional average tension might indicate.

While harvest season for fresh produce is largely finished, the upper Midwest is experiencing tension in van and refrigerated capacity due to the harvest and shipping season in that market.

Dry van continues to display a yellow (3.4 to 6.9:1 LTR) in some of the major freight markets—between TX and MI as example—with a national average of 2.3:1.

Despite regional variances, the national LTR for refrigerated truckload during week 46 was at 4.8 with a 5-year average of 8.5.

Today's flatbed spot market LTR of 8.7 shows some regional tension from the Southeast coast over to Texas.

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; and in 2022 most analysts estimate the contract percentage is on the higher side of this spread.

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 November 6–12, 2022, and also reflect on RGD from the month of September.

The regional view continued to show the Northeast displaying the most challenging RGD. With a national average RGD of 1.18, largely unchanged from October. The Northeast pattern continues with the highest RGD of 1.31, but offered some improvement in early November after two weeks of increasing performance issues.

Broadly speaking, route guides are performing well, with primary service providers accepting loads at 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 November 6–12, 2022.

This FTA is much improved from the lowest pandemic point of January 2022, which was 79% and 80% in August 2021.

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 and preassigning capacity
• Historically excessively long dwell events at origin and/or destination.
• Price is below market for loads with unattractive attributes requiring a price above market to offset the issues with the load.

While it is tempting to relax efforts to improve the attractiveness of loads as well as shipping and receiving locations with market tension as it is today, carriers are increasingly aware of the correlation between long dwell events, driver experience, and driver retention. Shippers and consignees should continue efforts to become “favored shippers” so as to be a priority when market tension returns.

For October, all three distance bands experienced improvement in RGD as primary providers increased their acceptance and the first backup accepted most primary rejections:

• Short haul (less than 400 miles) posted an improvement of 1% from October—about 1.2.
• Middle distance (400–600 miles) improved 4% from September to 1.25. This is the fourth highest RGD in October in the last five years, down 33% from last year.
• Long distance (over 600 miles) improved 3% from September to 1.21 and is the fourth highest RGD for October in the last five years.

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

Shown below is the C.H. Robinson 2022 and 2023 truckload dry van spot market cost per mile forecast without fuel. Like others, this forecast has been and will continue to be amended as 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 dark blue dotted line is the C.H. Robinson forecast for 2022.
• The light blue dotted line is the C.H. Robinson forecast for 2023.
• The forecast is bounded on the bottom by the estimated cost per mile to operate a truck.

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.

Average cost per mile change Y/Y for the dry van spot market:

• 2022 vs. 2021
  C.H. Robinson forecast suggests a 13% decline in average cost per mile.
• 2023 vs. 2022
  C.H. Robinson forecast suggests a 15% decline in average cost per mile.

When viewing the 2023 decline in average cost per mile consider that 2023 faces a 2022 comparable inflated by the Omicron COVID-19 wave seen in Q1 2022, which effectively decreased the active fleet due to illness, creating capacity scarcity, and driving up costs. Costs settled back quickly as drivers returned from illness and capacity aligned with decelerating freight volumes.

For 2023, the C.H. Robinson forecast shows normal seasonal downward movement of cost per mile in January and bottoms out at the estimated cost per mile to operate a truck.¹ The balance of 2022 is expected to follow historical seasonal patterns and close the year at a cost per mile very close to the forecast at the opening of this year.

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.

1) Estimated cost per mile to operate a truck is a C.H. Robinson forecast based on the American Transportation Research Institute (ATRI) historical costs to operate a truck through 2021.

DAT National dry van linehaul cost per mile is the broker to carrier cost, which excludes fuel surcharge. The C.H. Robinson forecast is an extension of that cost.

When reflecting on the average cost per mile to operate a truck, note that this is a national average across the carrier community. Accordingly, it aggregates carriers of all sizes—from owner-operators to the largest fleets.

Each carrier will have a different cost to operate per mile based on a host of variables with a key variable being the amount of empty (non-revenue generating) miles the carrier experiences.

The large portfolio of shipments C.H. Robinson handles is just one of the reasons carriers choose to haul for us. With so many load options, carriers can more easily find loads that decrease their operating expenses. This in turn creates more capacity options for shippers that work with C.H. Robinson.

Diesel pricing outlook

There is much conversation in the market about the U.S. days of supply of total distillate.

The "days of supply" figure provides an estimate should the U.S. not produce or import. However, the U.S. continues to produce and import. The most current statistic showing the week of November 4, 2022, was at 26 days. Visit the EIA website for the most current inventory level.

The image below shows the historical days of supply. Analysts reporting on this situation represent that while inventory is at the lower end of the historical patterns, production, imports and lower forecasted demand suggest this level of inventory will not result in an outage or shortage.

According to the U.S. Energy Information Administration:

• A gallon of trucking’s main fuel now costs $1.579 more than it did at this time in 2021.
• The average price of diesel rose in 6 of the 10 regions in EIA’s survey; it dropped in four.
• The largest increase was 9.5 cents in New England.
• The largest decline was 5.1 cents in the Gulf Coast region.
• California still has the costliest diesel in the nation with an average price of $6.180 a gallon—12 cents more than the second-most-expensive region, New England.

According to the (EIA):

• Retail diesel prices will average $4.86/gal in Q4 2022 and $4.29/gal in 2023.
• U.S. crude oil production in our forecast averages 11.7 million barrels per day (B/D) in 2022 and 12.4 million B/D in 2023, which would surpass the record high set in 2019.

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.

• Carriers with over 50 tractors: Focus on contracted awards with very little capacity available for the spot market.
• Focus on quality service: All carriers cite renewed focus on quality service. As such, many are prioritizing their best drivers with the most attractive freight in their portfolio.
• Acquisitions in the coming months: Multiple carriers cited strategies to acquire struggling carriers.

• Supply and demand balance: Many carriers cited the challenge to purchase incremental assets during the COVID-19 pandemic has prepared them for this cycle. Most cite well-balanced fleets.
• Trailers: Carriers report receipt of most back-ordered trailers.
• Tractors: Back orders are coming in with some still to be delivered.
• Parts: Continued high pricing and inventory issues on maintenance parts.
• Drop trailer dwell: Carriers report increasing dwell times in today's market.

• Driver recruiting: Larger markets have an easier time recruiting than rural markets.
• Applications are at good levels: Yet qualified applicants are more difficult to come by.
• Driver preferred freight attributes: Drop and hook with home time every week.
• Long haul roles are most difficult to fill.
• Teams continue to be difficult to staff and are in short supply.

The frequency and cadence of getting home is the leading concern of drivers and central to turnover and recruiting. Dwell time is cited as the second key challenge.

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.

Negotiations between the Pacific Maritime Association (PMA) and International Longshoreman's and Warehousemen's Union (ILWU) continue now well past the July 1, 2022, agreement expiration.

Both sides continue to talk and have cited no workflow disruptions are planned. The main sticking point/challenge with discussions is over a union jurisdiction issue. The Biden administration is monitoring the negotiations and White House supply chain envoy, Stephen Lyons, has said he is optimistic a deal will be reached this year.

The Oakland terminal picketing and shut down of three terminals on November 2, 2022, reported as disconnected with the contract itself and the ongoing negotiations. The Oakland situation was a clerk dispute and was resolved quickly. It focused around not being paid the proper amount of wages owed in a timely manner (Source: sfgate.com).

These exemptions aiding dray services of COVID-19 related imported materials were not renewed. First issued by FMCSA in March 2020 following the national emergency declared by President Trump in response to COVID-19, these exemptions had been extended and/or modified over 10 times. The most recent extension, which was issued in September and expired the first week of November, was not renewed.

For a full set of port insights, please contact your C.H. Robinson representative.

Container terminal gates will continue to be OPEN on Sundays 0800–1700 through December 18, 2022. This will continue to allow for reduced congestion and fluid truck movement. Charleston is currently the ideal routing location for East Coast freight.

The lack of available appointments to retrieve import containers means containers are left in the port past the last free day (LFD). Retrieval of containers on the same day as discharge is not possible in ports that require appointments so advanced planning is required.

Lead times have reduced overall due to a decrease of import volumes. Carriers are still cautious and stress that chassis shortages continue despite the volumes.

Chassis shortages (mostly 40') remain primary constraint. Average chassis dwell time according to the providers is currently about 14 days. Carrier capacity is strong though as volumes are down Y/Y by about 15%. Turn times average 82 minutes according to the Illinois Trucking Association and Geostamp. The chassis shortage in Chicago is exacerbated because drivers cannot reuse the equipment they drop off, reducing efficiency. This is also seen in other inland markets across the United States.

In general, all Midwest facilities continue to face chassis shortages.

Both Union Pacific and BNSF ramps continue to experience severe chassis deficit due to the increased volume of freight.

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