After a turbulent year in 2019, spot rates are showing a slight stabilization in the first quarter of 2020. Spot rates at the end of December climbed to an average of $1.73 per mile, which is well above the average rates seen six months prior, yet below data gathered for November. However, data indicates that while rates a stabilizing, shippers still hold the advantage when negotiating rates.
Contracts and Spot Rates
The trucking industry is always in a bit of a holding pattern in the first quarter of the year. Carriers and shippers are negotiating yearly agreements on spot rates, and commerce typically doesn’t get into full swing until the second quarter. It may be too soon to make projections about stabilization or growth until the middle or end of March. Shippers are expected to lock in rates early for the year, to prevent pressure down the road when demand for spot trucking could increase. Rates are stabilizing because shippers do not want to alienate carriers completely in negotiations, but this early into the year, it’s too early to predict the outcome.
Reasons for Low Stabilization
Last year, the trucking industry did not experience a spike in the fourth quarter, which – even though it was expected – was unusual. Shippers were dealing with overstock held over from 2018’s mad rush to stay ahead of tariffs. Additionally, the manufacturing sector experienced a contraction, so there were fewer shipments of domestic products and raw materials.
Shippers and Manufacturers
Shippers currently hold the upper hand when negotiating rates with carriers, simply because there is low demand in the spot market. For spot rates to increase, manufacturers will have to rebound from last year. Even if the manufacturing sector turns around, spot rates are expected to see up to a single-digit increase. The current forecast is that spot rates may stabilize, and the trucking industry will come back from 2019’s slump, which was created by artificial demand from shippers in 2018. The year over year growth may not be as high as 2017 or 2018, but there will still be growth in the trucking industry.
Currently, everyone has their eyes on the health of manufacturers and the overall demand as we move nearer to the second quarter.