Spot rates on the truckload market have fallen below 2021 levels in California, but some trucking executives believe a rebound is on the horizon once China’s COVID-19 lockdowns end and vessels begin to descend on the West Coast this summer.
Cargo that was front-loaded to avoid potential terminal disruption linked to West Coast labor talks could also help boost spot rates, as can new clean air regulations in California that could cut truck capacity by the end of the year.
While spot market rates reached record highs last year, the market has significantly cooled since the peak of $4.37 per mile last November, according to JOC’s Shipper Truckload Spot Rate Index.
Rates have fallen for five consecutive months, ending April at $3.24 per mile, down 3.3 percent from April 2021. In Los Angeles, shippers paid an average of $3.15 per mile last month, 5.5 percent lower year over year, and down from the peak of $4.27 last November.
The spot market may seem sluggish, but there are several reasons to think a freight recession isn’t imminent in California. Contract rates were more than 20 percent higher last month compared with April 2021, according to DAT’s data, and were flat to slightly up month over month.
Dave Jackson, CEO of Knight-Swift Transportation, said higher volumes will land at the ports of Los Angeles and Long Beach in the next few months, feeding more freight into the contract and spot truckload markets.
“You have three big things that are all going to happen in the back half of this year, including a flotilla of vessels outside China that we're waiting on coming to the United States,” Jackson told JOC.com.
“Then, the ports are just beginning labor negotiations and a lot of shippers are nervous about that and California put in a regulation that drivers must operate a 2010 truck or newer before January 1, 2023 as part of its clean air policies,” Jackson added. “It's estimated there are 8,000 drayage trucks in California right now that are not compliant ...”
Trucking companies have struggled to secure new tractors and trailers because manufacturers are hitting snags in production, including a shortage of raw materials and subcomponents. Many of the components on tractors and trailers are also necessary for chassis, such as air tanks, axles, and tires.
As port truckers struggle to buy California-compliant trucks, Jackson believes front-loaded cargo will pump additional demand into the state’s trucking market. In addition to the arrival of post-lockdown China volumes, ocean carriers have said shippers are front-loading cargo to get ahead of any possible labor disruption on the West Coast.
“What I suppose will happen is all that freight will hit in California, and some of that stuff isn't urgent and some of that stuff is crazy urgent,” Jackson said. “If it’s pretty urgent to you when it comes in ... you're going to pay to move it. So, it all just depends on how urgently those goods are needed. And it's hard to imagine that they're not fairly urgent for shippers.”