ACT Research: Tight capacity, high demand to push spot rates up 30% for months

Dive Brief:

ACT Research's spot leading indicator, derived from survey data, indicates rates will be up by about 30% YoY over the next few months, Vice President and Senior Analyst Tim Denoyer said during a company webinar Tuesday.
Tight capacity has sent spot rates soaring. "Spot truckload rates neared all-time highs in August," DAT reported Tuesday. Van, reefer and flatbed rates were up compared to July, and load-truck ratios increased in all three.
The typical six-month lag between spot rates and contract rates could shorten this cycle, Denoyer said, as shippers begin the contract rates cycle early to combat the tight spot market.

Dive Insight:

Steve Tam, ACT Research analyst and vice president, said consumer spending won't return to pre-pandemic levels until sometime between Q3 and Q4 of next year. But the current pattern of consumer spending "actually goes into the sweet spot for truck transportation," Jim Meil, principal industry analyst for ACT Research said during the webinar.

Consumer spending was at its lowest point in April, Meil said, and has since crawled back up to 4.5% below where it was in January. And durable goods, "which ordinarily get hammered in a recession, are doing quite well," Meil said. Expenditures for those goods, as well as for home entertainment, in July were higher than in January. On the other hand, expenditures in the services sector have dropped.

Granted, part of the reason the rebound is so sharp is because of how down the economy was during Q2 — "the worst in U.S. history," Meil said. But some carriers can attest that the worst is in the rearview mirror.

According to Morgan Stanley, ArcBest is "encouraged" by the recovery in retail, industrial manufacturing and construction. Multiple carriers noted how tight the TL market is. ArcBest expects to capitalize on TL business that spills over into the LTL market.

Capacity in the freight market is so tight that customers have made unsolicited offers to Knight-Swift and U.S. Xpress to increase rates, Morgan Stanley said. "Unsurprisingly, conversations with customers are very focused on shoring up capacity (vs. a focus on rate and service last year)," the firm said in a research note.

ACT Research forecasts double-digit growth in spot rates for the rest of this year and 2021, Denoyer said. A gradual tightening in equipment capacity will pressure rates upward in the coming months, according to Denoyer, while rates will likely fall early next year as drivers gradually return to the workforce (barring unforeseen relief legislation). Denoyer said the industry's lack of drivers will take months to rebalance.

Rail volume isn't hurting trucking rates, either. In the past couple of weeks, intermodal rates have shot up and rail capacity has effectively been sold out. "That's going to translate into strong trucking rates to fill that void in the coming months," Denoyer said during the webinar.

Meil suggested five things to watch in Q4 to gauge where the market is headed:

Numbers from purchasing managers.
Employment numbers.
Post-election confidence measures.
Prices on equities, crude oil and copper.
New cases of COVID-19.

"We're very, very aware of the fact that until a COVID[-19] cure comes along — the vaccine, or herd immunity or whatever — the risk remains high going forward," Meil said.