Truckload and intermodal pricing firmly remains at elevated levels, says Cass and Broughton report

The pricing train for truckload and intermodal freight movements continues to accelerate at a rapid clip, according to data in the most recent editions of the Truckload Linehaul Index and Intermodal Index from Cass Information Systems and Broughton Capital.

This pricing data is part of the Cass Truckload Linehaul Index and the Cass Intermodal Linehaul Index, which were both created in late 2011. The indices are based on actual freight invoices paid on behalf of Cass clients, which accounts for more than $23 billion annually and uses 2005 as its base month.

According to Cass and Broughton Capital, the truckload index “isolates” the linehaul component of full truckload costs from other components such as fuel and accessorials, which, in turn, provides an accurate reflection of trends in baseline truckload prices.

Truckload rates, which measure linehaul rates, saw a 9.0% increase in May, which the report said represents the “strongest percentage increase yet in this recovery.”

This eclipses April’s 8.2% annual increase, as well as prior months gains of November (up 6.3%), December (up 6.2%), January (up 6.3%), February (up 6.5%), and March (up 7.2%).

Truckload rates have now risen sequentially for seven straight months and annually for 14 straight months.

“Pricing for trucking is growing even stronger and ‘gaining momentum’ continues to be an understatement,” wrote Broughton Capital Managing Director Donald Broughton in the report. “Our realized contract pricing forecast for 2018 is 6% to 8%, and current data is clearly signaling that the risk to our estimate may be to the upside. We believe that this is the strongest normalized percentage of TL pricing achieved since deregulation (normalized meaning except for extreme periods of recovery from recession.”

Other factors influencing trucking pricing cited by Broughton included:

  • WTI crude at over $65 per barrel in tandem with a reacceleration of the industrial economy, which is providing alternative jobs for truck drivers and squeezing trucking capacity;
  • the consumer economy reaccelerating and is growing at the fastest pace since the 2008-09 recession. Inflation of investment accounts such as 401-K’s and the millennials starting to form households is buoying this trend; and
  • failure rate/bankruptcies have fallen to historical lows. Virtually no removal of capacity is a negative to pricing especially in the spot market. That number is beginning to grow, but unfortunately for the remaining players it hasn’t gotten big enough to generate any material pricing relief until recently

“Whether it is being driven by the increased demand from the industrial economy, the increased demand of the consumer economy, the decreased capacity from fewer drivers available, or the limitations of Electronic Logging Devices (ELD), it is hard to find a truck to move a load and expensive to hire that truck when you do find it,” wrote Broughton. “Rates at both the spot and contract level are strong and getting stronger.  With the start of the year re-bid process well underway, the current capacity shortage couldn’t be coming at a better time for the trucking industry.”

On the intermodal side, total pricing in May rose 9.1% on the heels of a 6.6% April increase. This was preceded by a 5.8% gain in March, a 5.4% gain in February, a 5% gain in January, a 4% gain in December, a 3.9% gain in November, a 1.9% gain in October, a 4% gain in September, a 1.3% gain in August, and a 0.6% gain in July.

Broughton commented that this speaks to the theme of pricing momentum continuing to improve, with the mode continuing to see the benefits of tight truckload capacity and higher diesel prices creating incremental demand and domestic intermodal pricing power.

And he also explained that intermodal pricing is beginning to catch a tailwind from trucking.

“We have historically observed a high degree of correlation between truckload and base intermodal pricing, and know that with the recent acceleration in truckload rates…. intermodal rates should have more room to increase in the coming months. We believe that domestic container shipment volume may grow at a mid to high single digit rate in 2018, but believe that is dependent upon the price of diesel staying at current levels or higher and demand in longer lengths of haul growing fast enough to offset the potential loss of volume in shorter lengths of haul, particularly in the east.”