Spot Rates and Capacity Outlook


The latter half of Q3 2019 sparked a turning point in the never-ending battle of spot market rates. After 6 consecutive quarters of favorable rates for shippers, carriers may finally be poised to get the upper hand. Although rates remain steady and there is still plenty of capacity to cover the volume of freight, several key factors point towards a shift.


As global cases of Coronavirus (COVID-19) surpass 100,000 and cases in the US rise, the over-the-road trucking market has yet to feel the side effects that many supply chain sectors are currently weathering. For Example, the AAPA(American Association of Port Authorities) estimated that US Port volumes could be down as much as 20% for Q1. When the global economy begins to come back online, the pent-up freight volumes are going to hit all at once. This will most certainly tie up capacity, in and around the port cities. As this narrative plays out, we will see what other effects the COVID-19 has on domestic and global markets.

Regulatory Factors


There are a couple key pieces of legislation making waves in the trucking industry, potentially effecting the number of drivers in the market.

California’s AB5 will make it more difficult for California-based motor carriers to utilize owner-operators. They will instead have to treat these drivers like regular employees, making them eligible for healthcare, sick/vacation leave,unemployment, etc. With other states like New York and New Jersey contemplating similar legislation, this will likely have a longer-term effect on rates and capacity.

Another piece of legislation that will affect drivers/capacity is the FMCSA Drug & Alcohol Clearinghouse. This database provides employers a real time view of any federal,drug and alcohol related violations as it relates to CDL holders. In a March 4th investor note, Morgan Stanley stated that 8% of the Clearinghouse tests resulted in failures, a massive leap from the expected 1-2% failure prediction. If this failure trend continues, trucking companies will feel the pinch of available drivers for hire.

Seasonal Demand


Seasonal demand is one of the most predictable and influential cycles in the trucking industry.Produce, building products and summer food/beverages all influence capacity and rates during their respective seasons. As drivers migrate to capitalize on demand surges, other markets will raise rates to keep capacity. With tender rejection up slightly and volume up more than 5% year over year (Freightwaves –OTVI.USA), these seasonal demands will further compound Q2/Q3 capacity tightness.

Many of these factors have yet to play out completely but when you add in other factors such as politics, the stock market, and natural disasters it’s hard to predict when a shift will take place. As Q1 winds down, the only thing that is certain about the freight market is that it’s very uncertain.

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