Rather than “surging” or “panicked” or “not sustainable,” trucking industry experts and load board operators these days describe the spot market for freight as “seasonal” and “returning to normal” and “recovering” in the new year after it surged in 2021 but slumped for much of last year.
“The spot market is normalizing—it has been really for the last five months,” said Brent Hutto, who is chief relationship officer for Truckstop, a freight rate data aggregator but also a load marketplace.
DAT Freight & Analytics serves this dual mission as well, as a spotter of trends with its DAT IQ analytics arm and as operator of its own load board, DAT One. Dean Croke, DAT's principal analyst, said he sees the spot and contract markets both declining, with rates falling in both mostly because of current excess capacity after the pre-holiday period and the holidays, which are generally the busiest times for freight transportation.
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“Even though demand is relatively flat, we’ve got more trucks than loads, and that’s why rates will continue to go down through the first quarter,” Croke told FleetOwner. “This quiet season will be quieter than normal because of the economic conditions we are working with and mostly because there is an excess of capacity in the market against the backdrop of cooling demand. And that just puts more downward pressure on rates. That’s why you’re seeing spot rates continue to decline longer term.”
He added, however: “Contract rates are doing the same. But we expect the bottom to happen sometime in late [first quarter of 2023] and early Q2, and then that market cycle reverts to capacity tightening and demand increasing, which coincides exactly with spring, which is normally the beginning of the freight season.”
What the data reveals about the spot market
Data from both DAT and Truckstop bears out many of these trends. And these two are the dominant players in the space, operating the most trafficked load boards in the freight-hauling business for large and small trucking companies and owner-operators.
The week before 2022 turned into 2023, truckers saw a “blip” week on the spot market, especially refrigerated, or “reefer,” carriers, according to DAT. The total number of spot-market loads on the DAT One network rose 9% for the week, the highest weekly total since mid-October. Dry van load posts rose 4.1% over the prior week, and reefer posts increased 44% as distributors and grocers restocked (actually down 48% from the same week a year ago). Flatbed posts fell 18.7% over the prior week.
Capacity is down, but spot-market rates per mile are up, DAT reports. Dry van equipment posts fell 30% the week of Dec. 25 to Dec. 31, but van linehaul rates were up 12 cents to $2 a mile, the highest weekly linehaul rate since the last week in May, DAT said in a Jan. 4 email. Reefer posts also were down 25.8%, but linehaul rates in that sector rose 33 cents to $2.50 a mile, the highest since mid-April. Flatbed posts were down 37.5%, but rates were up 5 cents to $2.19 per mile, according to DAT.
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In terms of monthly average rates, the van rate was up 2 cents over November, and the reefer rate was equal to November. Meanwhile, flatbed was 6 cents less per mile.
Truckstop teams with a third firm, industry data aggregator FTR Transportation Intelligence, whose insights for the week of Jan. 9 observed that the “spot market continues to operate according to expectations.”
“Spot volume largely followed seasonal expectations with a large rebound,” according to an email from Truckstop. “Although refrigerated volume eased somewhat, it had continued to rise through the holidays, unlike dry van and flatbed. Although flatbed load activity is running far below comparable 2022 and five-year average levels, [spot-market] volume in the latest week was the strongest since early November.”
Where the market has been versus where it’s going
The spot market continued a slump in November that began in earnest last spring and summer. Spot rates in November were lower for all three equipment types, DAT reported at the time. And spot rates were down significantly from the previous year when the market surged, and smaller operators sought to capitalize by flooding the marketplace, looking for freight to haul.
By way of the data, the spot van rate fell 5 cents in November, for example, to $2.38 per mile, a 55-cent decline year-over-year, while the average reefer rate was $2.80 per mile, down a penny from October and 65 cents lower than November 2021. The average flatbed rate was $2.82 per mile, 6 cents lower than October and down 24 cents year-over-year.
Anyone who hauls freight has the choice of which marketplace, contract or spot, to find business. Bigger trucking companies, by and large, have some advantages in that they can contract with shippers to regularly haul their loads, or they can jump onto to the spot market and negotiate with freight brokers as one-time transactions for certain lanes.
Smaller carriers and owner-operators usually only have the spot market to mine for freight to haul, although they have some protection if they lease their services to larger carriers. And in the last year, many independents have sought such shelter because they can take advantage—in these times of historically high fuel prices—of the bulk fuel discounts and fuel surcharges that big haulers enjoy with their longer-term contracts.
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Or as Hutto put it: "High fuel costs are hurting the owner-operator, so they gotta make sure they’re getting [those costs] back. Fuel in the contract marketplace is not as much of a struggle because of fuel surcharges. It’s not negotiated into the spot-market contract."
But he added, "What has moved the freight out of spot and into contract is rates, not necessarily fuel. The shipper doesn’t want to go through the problems of the pandemic again. Shippers have to have larger providers, which aren’t in [the spot market]. You’re going to use those because you have certainty. Shippers always default to getting the product to the market over price. Fuel always plays a part in that it’s a variable that moves up and down fast, but it’s not the [determining factor]. Certainty is. There’s more certainty to recoup fuel costs in contract."
Hutto and Croke said these conditions will lead shippers to weave their business through both the contract and spot markets in innovative and maybe even unprecedented ways.
“They can manage their costs better when they can do that more strategically," Croke said. "That’s why we are seeing more spot market volume than we’ve seen historically before. Even though dry van business is down 40% compared to December 2021, it’s the second-highest level of load posts in the last six years. Why is that? Because there is more volume going into the spot market historically, and that trend will continue. Volumes are down, but they are still really good compared to prior pandemic years.”
“Right now, you’ve got a lot more shippers putting a lot more contract freight into the spot market, which is what’s going to make spot rates start to increase when you push volume into that market," Croke told FleetOwner. "That will start to help drive that next market cycle up through Q2."
He continued: "The market has cooled off. Demand has cooled off. Rates dropped substantially in the spot market and then started dropping midyear in the contract market. Spot rates lead contract rates by about a four- to six-month lag, so by the time we think that spot rates start to bottom out and come back up, contract rates will start to bottom out and come back up also."
