Truckload Update - July 24, 2020

The possible end of the extended unemployment insurance program next week, COVID-19 outbreaks in many states, uncertainty in consumer demand, and rising retail warehouse inventories make current truckload industry predictions a little cloudy. Some factors such as several recent data points suggesting inventories are rising faster than sales lead us to believe not all is well, but could be looking up. The latest Logistics Managers Index showed June inventory levels jumped up by 7.6% month-over-month after being relatively flat for all of March, April, and May. Warehouse capacity has been contracting for four consecutive months, with the largest decrease in June dropping by a further 6% to its lowest level since the index began in early 2018. The latest manufacturing and sales inventory report published last week by the Census Bureau showed that the inventory-to-sales ratio improved slightly to 1.51 in May from 1.67 in April which is a step in the right direction. From a freight recovery perspective, high inventory-to-sales ratios will eventually translate to lower truckload volumes.

National average spot rates (rolling average including fuel) for July rates are on the rise:

• Van: $2.02 per mile, 21 cents compared to June
• Flatbed: $2.18 per mile, up 11 cents
• Reefer: $2.29 per mile, up 14 cents

Contract and spot prices, however, have not moved in sync as they traditionally do. Spot rates have risen faster since May and are now close to reaching contract rates. This is a direct result of the ongoing COVID-19 pandemic, which has created more inconsistent freight volumes and unbalanced carrier networks. As shippers send more loads to the spot market to meet the erratic demand, carriers are increasingly become more selective about the contract loads that they choose to haul.

The U.S. Dept. of Agriculture reported that seasonal truckloads of domestic produce fell 8% and imported produce fell 3% in the third week of July. That’s the equivalent of 4,868 fewer loads than the previous week. Produce volumes from Mexico continue to fall from their mid-June high, but are down 6% year-over-year because of decreased demand in the U.S. foodservice sector from COVID-19 closures. Load volumes from the California produce markets of Fresno, Ontario, Stockton, and San Francisco increased 9% week-over-week and are now up 28% over the last three weeks. U.S. Industrial Production reported by the Federal Reserved increased 5.4% in June, which is the second straight month on the rise and a positive sign for economic recovery in manufacturing.

While recovery is slow in some industries, others are taking a turn in the right direction. U.S. Industrial Production reported by the federal reserved increased 5.4% in June, the second straight month for improvement and a positive sign for economic recovery in manufacturing. Home builders also reported stronger confidence in a post-COVID recovery based on the National Association of Home Builders (NAHB) Housing Market Index (HMI), which jumped 14 points to 72 for new single-family homes. The HMI is a diffusion index, which means that a reading above 50 indicates a favorable outlook on home sales and a reading below 50 indicates a negative outlook.