Truckload and intermodal rates still in opposite directions, says Avondale and Cass report

For the month of June, the state of truckload and intermodal freight rates was again mixed, according to the most recent edition of the Truckload and Intermodal Cost Indexes from Cass Information Systems and Avondale Partners.

This pricing data is part of the Cass Truckload Linehaul Index and the Cass Intermodal Linehaul Index, which were both created in late 2011. The indices are based on actual freight invoices paid on behalf of Cass clients, which accounts for more than $23 billion annually and uses 2005 as its base month.

Cass and Avondale said the truckload index “isolates” the linehaul component of full truckload costs from other components such as fuel and accessorials, which in turn provides an accurate reflection of trends in baseline truckload prices.

Truckload rates in June headed up 3.6 percent annually in June, according to Cass and Avondale. This followed a 5.2 percent annual gain recorded in June 2014. This index measures the change in base linehaul rates.

“We would point out that contract pricing (which applies to 95+% of the public carriers’ freight) has been accelerating after a drawn-out bid season last year,” stated Avondale Partners. “As a result, although spot market pricing has decelerated, we are not surprised to see our index continue to post mid-to-high single digit gains and we expect this to continue. We see TL pricing increasing between 4% and 9% in 2015, depending on how much rate [increase] each carrier was successful in obtaining in 2014 and when those rate increases were achieved.”

In a recent interview, Mike Regan, chief relationship officer for TranzAct Technologies, explained that the only reason truckload rates won’t be higher is that the economy is softer and in relatively weak condition, with GDP shuffling along at 2 or 2.5 percent.

“Now, if GDP got to 3 or 3.5 percent, there would be a real capacity crisis. Right now, there are factors weighing into rate increases like carriers raising driver pay, which increases the cost of doing business, along with other factors affecting costs for carrier like the cost of equipment and insurance, as well as general business expenses going up, as well as the demand factor,” he said.

For shippers that are doing a good job of managing their freight and transportation processes and are doing things like providing advance notice to carriers can get equipment to them in a timely manner, Regan said that can go a long way towards rate relief.

“If you continue to do business as you have always done business and are not open to making changes, which does not bode well for securing capacity….we think truckload rates over the next 12 months could be up between 4-7 percent,” Regan said. “But by making changes, though, shippers can mitigate those prices, but that requires making changes.”

June intermodal rates on an “all in” basis dropped 2.8 percent in June, marking the sixth straight month.

Cass and Avondale explained that as lower fuel surcharges continue to affect the cost of shipping, many loads are shifting from intermodal to truckload, with intermodal rates typically mirroring changes in fuel and remaining competitive, coupled with efforts to shift modes continuing to be challenged by limited capacity.

“We expect intermodal rates will continue to decline in 2015 as the dramatic drop in diesel prices and even more dramatic drop in oil takes its toll on US domestic demand,” Avondale said. “We concede that the extent to which loads can be shifted from domestic intermodal back to over-the-road truck is dependent on trucking capacity, but the ~$0.20 a mile decline in fuel surcharges collected by truckers in the last year has to challenge demand and pricing power for domestic intermodal, especially in shorter lengths of haul.”

FTR Senior Consultant Larry Gross explained that on the domestic side, there are multiple headwinds for intermodal, with overall domestic output potentially being a little
weak by comparison to previous years.

“Those headwinds include more than adequate truckload capacity right now, low fuel prices, which is in itself not a deal killer but still a component, and intermodal services continues to be somewhat problematic relative to what it used to be in terms of train speeds not being quite as reliable or speedy,” said Gross. “These are not show stoppers but when put together there are some headwinds there that can slow growth.”