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Market Update

For those hoping that May would feature a rapid economic rebound based on North America’s reopening efforts, they were likely disappointed with the past month’s results. While May’s freight activity did exhibit minimal signs of improvement (1.6% increase in shipment volumes from April), freight volumes have slipped 23.6% when compared to May 2019 levels. Weak consumer confidence persisted through May, and many carriers are experiencing double-digit volume deficits across all modes (except small package, which has remained prominent throughout the COVID period). June is typically the best performing month in Q2 for the transportation market, and one can expect shipment volumes and per-mile truckload linehaul rates to improve in the next data release.

Speaking of per-mile truckload linehaul rates, May’s data also displayed nominal growth in this area, rising 0.7% relative to April. However, year-ago metrics again highlight erosion, as today’s rates have fallen off 5.0% from May 2019. Further pricing analysis for specific truckload types indicates that dry van rates are down 8%, reefer rates are down 7%, and flatbed rates are down 13% (year-over-year figures).

The above figures support the belief that the transportation market bottomed in April. As the economy reopens, it is anticipated that shipment volumes will build and linehaul rates will surge. This falls in line with the Law of Supply and Demand, which the freight market traditionally follows – as demand for capacity swells, the price tag for securing that capacity will escalate in line with the demand.

Another factor to watch – if the economy does not reopen quickly enough and shipment volumes remain low, the supply of trucks and drivers may be cut by carriers. This could potentially cause a rebalancing of transportation pricing as supply levels decrease to meet the diminished demand levels.

Regardless, it is expected that freight levels will not return to 2019-levels until 2021 at the earliest. Shippers should expect to continue benefitting from reduced freight and fuel costs. Further, if shippers have upcoming carrier contract negotiations, shippers should push carriers to propose and accept reduced rates when locking in consistent capacity.

In effect, May’s response to April’s market bottom was not as strong as anticipated. June should be better, and the improvement will depend on how reopening efforts track through the end of the month.

*Data Source: May 2020 Cass Transportation Index Report

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