Less-Than-Truckload Rates Surge 8.2% Y/Y in Latest PPI Data
RedStone Resource
May 15, 2024
Inside This Edition
Truckload and Rail Intermodal
Truckload prices in the April PPI were also elevated in April. The PPI increased by 0.6% month-over-month like the LTL index, but it was still 4.4% lower than it was at this time last year. DAT showed at the end of April that the Load-to-Truck-Ratio (which mostly covers the TL spot market) was up 38.3% year-over-year. In other words, there was 38% more loads looking for available trucks vs. a year ago.
US Dollar Strength Holds for Now, JP Morgan Forecast Shows Continuation
The US dollar has generally remained strong thus far in 2024, the US dollar index has risen by 3.6% YTD and is marginally higher by 2.4% Y/Y. More recently, a run-up in the dollar in Q1 yielded to some softening in the past 30 days, the index has slipped by 1%
Ocean GRI’s Generally Add $1,000/FEU
Spot rates surged in the days and weeks following the closure of the Red Sea, but as global capacity begins to adjust and work longer transit times into the mix, some easing of capacity has helped in the meantime. But, as contract rates come up for renewal, it appears that the average GRI for inbound containers from Asia will add approximately $1,000 per forty foot equivalent.
Economic Briefing
Less-Than-Truckload Rates Surge 8.2% Y/Y in Latest PPI Data
The latest Producer Price Index (PPI) from April showed that less-than-truckload (LTL) rates were up 0.6% month-over-month but were up 8.2% year-over-year. The PPI is derived from surveys of users or producers of goods or services. In this case, it measures changes in market pricing for LTL services and this measure would include both contract and spot rates plus fuel.
Studies conducted that looked at historical periods in which a major LTL carrier has exited the market showed that prices had increases on average between 4-8% over the 12 months following the bankruptcy. In this case, history is repeating itself with rates up 8.2% in the latest data. But reductions in fuel surcharge rates might suggest that the cost of services is a bit higher than 8.2%.
A combination of shippers hoping to keep inventory levels balanced coupled with re-distribution of nearly $5B a year in shipping activity (under a normal year of distribution) is going to keep core LTL services costs higher – and this could be one of the first real periods since last July that the loss of that capacity is going to really show the full impact as the market heads into the peak season.
Truckload and Rail Intermodal
Truckload prices in the April PPI were also elevated in April. The PPI increased by 0.6% month-over-month like the LTL index, but it was still 4.4% lower than it was at this time last year. DAT showed at the end of April that the Load-to-Truck-Ratio (which mostly covers the TL spot market) was up 38.3% year-over-year. In other words, there was 38% more loads looking for available trucks vs. a year ago. Most of the tighter LTRs were below the Mason-Dixon line in the southern regions of the country. Some of this could be due to emergency cleanup activity from severe storms that have hit the Midwest hard this year (reinvigoration of the traditional Tornado Alley corridor). Some of it is also dislocated capacity that was stuck elsewhere in the country looking for shipments to get them back to markets with higher demand. And lastly, mapping construction activity shows some areas with strong pockets of activity which also is in areas where TL capacity is the tightest (suggesting that some drivers may have at least temporarily parked capacity and shifted into the construction sector where wages are higher and steadier now).
The lone PPI for freight rail also showed a stronger 0.9% M/M increase in rates in April, and they remained a steady 1.8% higher versus rates from a year ago. The notable uptick in the freight sector is slow in building momentum, but there is some slow tightening of capacity headed into the summer months. Historically, this is nothing significant and perhaps better described as “akin to a return to pre-pandemic levels of annual growth rates”.
Transportation Briefing
US Dollar Strength Holds for Now, JP Morgan Forecast Shows Continuation
The US dollar has generally remained strong thus far in 2024, the US dollar index has risen by 3.6% YTD and is marginally higher by 2.4% Y/Y. More recently, a run-up in the dollar in Q1 yielded to some softening in the past 30 days, the index has slipped by 1%. Obviously, A fluctuating dollar can risk keeping inflation tame for imports and keeping a lid on oil prices. For now, without another global market emerging stronger than the US, investors are still flocking to the dollar to help keep it strong.
JP Morgan released a report (linked below) with their dollar forecast. With the Federal Reserve likely keeping rates higher for longer, that is likely to keep the dollar higher as well. There are obviously many factors that can change the value of national currency and the US cannot control foreign governments from taking steps to change the value of their currency (which is usually devaluing their currencies against the dollar which keeps the dollar stronger and keeps their exports to the US healthier). That bias in keeping the dollar stronger is playing into the JP Morgan forecast which shows it continuing to be higher through 2025. Again, much of it will depend on the Fed, but a stronger dollar should continue to fuel US imports.
Ocean GRI’s Generally Add $1,000/FEU
Many shippers have been waiting anxiously for the latest maritime GRI’s to be released in the wake of the Red Sea disruption, continued throttled volumes through the Panama Canal, and a few spot issues in the US northeast in the wake of the Baltimore Bridge Collapse. Spot rates surged in the days and weeks following the closure of the Red Sea, but as global capacity begins to adjust and work longer transit times into the mix, some easing of capacity has helped in the meantime. But, as contract rates come up for renewal, it appears that the average GRI for inbound containers from Asia will add approximately $1,000 per forty foot equivalent. Of course, negotiations will change real rats for contractual customers, but if capacity remains tight as expected, prices are likely to stick.
In April, global manufacturers were reporting that input costs for manufacturing were rising due largely to the increase in transportation costs for raw material inputs. That was prior to GRI activity and contract negotiations that took place in May. Questions remain about the health of the industry when peak season hits, and some shippers have considered moving some of their shipments earlier than normal in case capacity constraints emerge because of the Red Sea closure (which may have stripped 15-20% of global capacity out of the system). Again, at this time, lower global demand is masking some of the true impact of the Red Sea situation. This summer and fall could prove to add challenges to the global distribution system.
