As we try to navigate Q1 and the endless parade of snowstorms across the country, supply chains have become disrupted and a large uptick in spot market freight has been seen causing a rise in van rates as carriers scramble to recover.
Snow and ice. Yup. That about sums it up.
Load availability declined 3.9% last week. It’s this crazy weather. February is usually the slowest month of the year for trucks on the highways and on load boards, but challenging conditions have forced carriers and shippers to reschedule or cancel pickups and deliveries. Fleets can’t always change their schedules on a dime, which drives more freight to the spot market. (See Mark Montague’srecent blog post for a more detailed explanation.)
It seems unlikely that all of this activity will yield a net increase in freight movements. In fact, when all is said and done, this winter’s extreme weather is expected to cost the U.S. economy anywhere from $15 billion to$50 billion in damages and lost productivity. There will be winners as well as losers. If I’m selling shovels and snow blowers, or I own a hotel, restaurant or bar near an airport where flights have been cancelled, I’m feeling flush right now.
If you drive a truck, or you are responsible for moving freight from point A to point B, however, it’s just that much harder when the weather doesn’t cooperate. And guess what? It costs more, too.
There is a nationwide shortage of rock salt. You can read this article on NPR.com, but I’ll just hit some of the high points: Salt is mined in Hutchinson KS but trucks can’t haul it 60 miles to be spread on roads in Wichita. Rock salt is usually delivered by barge to many cities, but inland waterways are too icy for barge traffic. Salt prices are up as much as fivefold in Chicago, from $50 per ton to $250.
So it should not be a big surprise that van rates are not declining. Maybe it’s a little surprising that rates are ridiculously high, at a national average of $1.97 per mile. Remember, this is February. As noted above, February is expected to be the slowest month of the year for trucking freight, but the rates are higher than they were in June. Rates trended up through most of the second half of 2013, peaking at $1.95 in December, and then they rose more in January.
Winter will end, I promise. In my Portland backyard last week, the snow melted to reveal six inches of green daffodil shoots. That is a harbinger of spring. Warmer weather adds seasonal freight to the pipeline. A few short weeks from now, we can expect harvests to start up in the Rio Grande Valley and in Southern California. Pallets of crated fruit and vegetables will be loaded into temperature-controlled vans in agricultural areas on both sides of the Mexican border, destined for your local supermarket and mine. Shortly after that, building equipment and materials will get stacked onto flatbed trucks, destined for construction and energy exploration sites all over the U.S. Van freight volume will pick up, too, moving all the non-essential items that got cancelled in the past couple of months.
The surge in activity usually means higher rates in Q2. I know what you’re thinking: How much higher can they get? Beats me. If the economy expands at the same time, it could put even more pressure on truck capacity. We could see average van rates above $2.00 per mile, even if fuel prices don’t change.
On the other hand, even an additional bump in rates might not compensate carriers for the lost productivity of the past two or three months, not to mention HOS, CARB and impending driver shortages. Truckload carriers are also competing more fiercely with rail intermodal, which is increasingly effective for temperature controlled freight and other specialty cargo types, especially on hauls longer than 500 miles. That competition keeps carriers from raising rates. Instead, the challenging business environment may just eat away at fleet profits. All the salt in the world won’t make that taste any better.
Courtesy of DAT – Written by Peggy Dorf - Photo by Tom Saunders, Virginia Department of Transportation