Happy Days Ahead!
I’m going to start this post with positive news. LTL rates are dropping, and we believe they will fall more sharply than the “experts” say. And, perhaps, we are seeing better LTL performance.
Why do you say?
Cuz I said so, that’s why! 😉
Again — my opinion may be as valuable as a herd of three-legged cows, but I’m reading the data and the charts, so it’s what I see.
But first, here are some headlines:
- Inflation — historical and not getting any better.
- Stocks in bear territory — hitting new lows in 2022.
- Diesel — after a muted decline off of historic levels — JUMPED $0.39 LAST WEEK!
- US imports in September suffered the steepest drop since the 2020 lockdowns.
- Truck transportation jobs “walloped” in September.
- Health Insurance premiums rise 40% for 2023!
Pick your poison — there is nasty news everywhere you look.
Reconex LTL SPI
Reconex LTL SPI (Shipper Price Index — proprietary) has logged its 6th consecutive year-over-year decline. The first four were relatively small, but the last two months have been more significant. As we know, TL pricing has declined since January of this year, even with the shocking surge in diesel prices.
The headlines?
According to the Morgan Stanley Shipper Survey, in which some 100 corporations regularly share their transportation needs and macro expectations, net ordering levels have reached the lowest point in the survey’s 12-year history. Ordering levels are down 40% year over year. Net inventory levels are also unusually high.
“LTL carriers maintain strong pricing discipline per the gurus at headline USA.” That might be a relatively true statement, but in the face of a crashing economy, do you think that’s going to hold?
We’re already seeing evidence that it’s not.
Now consider breaking down “LTL pricing.” Typically that’s the base rate (discounted), the fuel surcharge, and any accessorial charges. Reconex has broken that down for you where no one else has. Look at the chart year-over-year; base rates are rolling over and heading for “normalcy.” And “normal” in these cycles means expect a 5% DROP in year-over-year pricing. Maybe more since we’re coming off of every measure being “historic.”
Diesel fuel surcharges may certainly bite into that drop, but look at the explosion of accessorial charges as a component of LTL pricing! Wow!
It is absolutely crazy where accessorials have gone! Anyone not shipping industrial goods dock-to-dock has been feeling this, haven’t they? But will that continue, or will recession pressures force carriers to back off some of these charges?
Tying it All Together
Three primary economic ingredients that will feed the pricing decline are rising inventories, falling demand, and fewer shipments.
All of this will be interesting to watch, for sure!
FYI — check out the chart showing the spread between contract and spot rates! Where does this end up?
