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FWF Market Insights: Q2 2022 Analysis

Why FWF Market Insights?

Stay up-to-date on industry trends with FWF’s market analysis. The logistics and transportation industry is constantly moving. Understanding the fundamentals of how rates are affected and staying relevant to trends begins with understanding supply and demand. It is vital for your business planning and market knowledge.  

If you want to learn more, check out FWF’s Basic Breakdown of Supply and Demand. 

Overview

The rapid decline of transportation demand seemingly reached its bottom in Q2 and remained flat when May and June are typically strong months for shipping and provide an upward push. Freight volumes have not completely dropped, but as inflationary pressures continue, consumers are not expected to increase demand during the second half of the year. Capacity typically eases in July following a busy May and June, but since this quarter was unseasonably light there is uncertainty about how soft it will get. 

Truckload Rates

Using spot and contract data from DAT, FWF aggregated the monthly and quarterly linehaul rate-per-mile for reefers, flatbeds, and dry vans to determine the average for all three trailer types combined.  

Quarterly Contract RPM Excluding Fuel       Quarterly Spot RPM Excluding Fuel   
Quarter Average    RPM    % Change        Quarter Average    RPM    % Change   
Q3 2021 Average   $2.62    

  

   Q3 2021 Average   $2.63       

  

Q4 2021 Average   $2.68  +2.3%      Q4 2021 Average   $2.70  +2.7%  
Q1 2022 Average   $2.74  +2.2%      Q1 2022 Average   $2.74  +1.5%  
Q2 2022 Average   $2.78  +1.5%      Q2 2022 Average   $2.30  -16.1%  

You can find the most up-to-date RPM data by trailer type on DAT.  

While contract rates increased 1.5% from Q1 to Q2, spot rates fell 16.1% as volumes decreased across the board and equipment posts for all three trailer types reached 6-year highs. The decline in shipments mixed with the oversupply of trucks put downward pressure on rates, even during May and June when rates typically increase.  

In the first half of Q2, dry van linehaul rates continued their fast-paced decline, before seemingly reaching a bottom in mid-May and holding relatively steady through the end of the quarter. Dry van spot rates are about $0.38 lower than this time last year, but are still $0.25 higher compared to pre-pandemic years. 

Peak produce season occurs in June; however, this year has been soft as operating costs increase and climate challenges persist. Overall, produce volumes in the first 25 weeks of this year were down 12.6% y/y, greatly impacting reefer rates. Reefer linehaul rates typically increase by $0.12/mile in the first three weeks of June, but this year they declined by the same amount. Reefer rates are down $0.55 y/y, but are still $0.21 higher than the pre-pandemic average for this time of the year.  

Flatbed rates remained relatively steady throughout Q2, ending the quarter just below their 13-month average. Flatbed rates are $0.24 lower than this time last year, but are still $0.47 higher compared to pre-pandemic years. 

This chart was created by FWF using aggregated RPM data from DAT.

Diesel Prices  

The cost of fuel continued to climb throughout the second quarter, reaching record highs and greatly impacting carriers. The cost of diesel increased 12.7% from Q1 to Q2 and is up 74.8% Y/Y. The EIA expects energy prices to remain elevated at historical highs through the next year. 

“We continue to see historically high energy prices as a result of the economic recovery and the repercussions of Russia’s full-scale invasion of Ukraine,” EIA Administrator Joe DeCarolis said in a statement. “Although we expect the current upward pressure on energy prices to lessen, high energy prices will likely remain prevalent in the US this year and next.”  

At the end of June, President Biden called for a federal gas tax holiday for three months to provide relief to consumers. He also called on states to take similar action and provide additional relief. The federal government charges $0.24 per gallon of diesel.  

This chart was created by FWF using diesel price data from the U.S. Energy Information Administration.

Current Factors Driving the Freight Market    

Inflation and Consumer Demand 

The freight market cooled off as the effects of inflation and global events shifted consumers’ mindsets. Inflation rates hit 8.6% in May, the largest reading since 1981. Many consumers have begun to pull back their spending, with retail sales dropping 0.3% in May, and are expected to pull back even further in the coming months.  

The University of Michigan’s Consumer Sentiment Index is a consumer confidence index that measures how optimistic consumers feel about their finances and the economy. In May, the index measured 58.4, the lowest since 2011. When consumers are less confident in the outlook of the economy, the less likely they are to spend their money, thus decreasing the demand for trucking.  

The job market has been an area of strength in the U.S. economy; however, businesses are expected to begin to react to the changing market, slowing hiring and laying off current employees. While the job market has been helping consumers secure higher wages and counteract inflation, the savings rate is now below pre-pandemic levels and credit utilization has hit new highs. 

Global Supply Chain Disruptions 

Supply chain issues have been prevalent in the U.S. since the beginning of the pandemic and while some progress has been made, issues continue to emerge.  

Shanghai, China ended its two-month long COVID-19 lockdown in June and import volumes are expected to increase with this reopening. Notable volume increases could happen in the coming months as there are large amounts of pent-up demand, though it is too early to predict the spike in imports.  

COVID-19 cases are increasing in the U.S. again, as highly transmissible new subvariants emerge. Although economic shutdown is not likely, COVID-19 infection disrupts the supply chain as it keeps adults from returning to work in all industries.  

The Russia-Ukraine War also continues to add to supply chain issues, stopping or slowing the flow of goods and creating several shortages. Russia and Ukraine export nearly a third of the world’s wheat and barley and over 70% of its sunflower oil. They are also top producers in neon and palladium, key resources in the production of semiconductor chips.  

Conclusion

Following the Fourth of July holiday, the freight market tends to ease until an increase during the back-to-school season; however, this season was unseasonably soft and has led to uncertainty about the coming months. Indicators to watch that will provide insight on the direction of the market in the coming months include capacity, inflation, and consumer spending. 

FWF continues to provide customers and carriers with reliable and new information to navigate the freight market with in-depth knowledge and data. Visit FWF’s resource center for more information that can improve your insights.  

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