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September 30 2019

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50 The Journal of Commerce | September 30 2019 Surface Transportation SUPPLY CHAIN EXECUTIVES sketching out transportation budgets for 2020 have a difficult task ahead of them — mapping out a spending plan while economists, pricing analysts, and fleets classify the trucking market as everything from "healthy" to a "bloodbath" amid an uncertain US economy. It's hard to make any definitive conclusions right now; the best play may be simply to pay attention to how spot and contract rates shift over the next three months. A large part of this uncertainty revolves around how much empha - sis to put on conditions in the spot market versus the contract truckload market. Motor carriers dependent on the volatile spot market are more prone to declare bankruptcy than are large truckload carriers with a lot of contract business. No one has an exact figure on the market share be- tween contract and spot, but analysts estimate somewhere between 80 and 85 percent of loads are tendered under contract. The trucking market is certainly not as healthy as in early 2018, when contract and spot rates were rising, but it also is not as damaged as in 2009. There is a case to be made that we remain in the "muddy middle" — not robust, but not floundering. Spot slippage Although spot rates were down more than 20 percent earlier this year, essentially returning the mar- ket to 2017 levels, there are fleets de- claring bankruptcy because expenses have continued to rise in the last two years. HVH Transportation and Falcon Transport were two well- known names in truckload to fall by the wayside, while New England Motor Freight and LME suffered the same fate in the less-than-truckload (LTL) space. On a year-over-year basis, spot rates troughed with a 21 percent decline in July 2018, but the curve has swung back somewhat with August down only 16 percent, according to DAT Solutions. That isn't necessarily a recovery, but rather indicative of spot rates falling 20 cents per mile between July and November 2018. In other words, the bar has been signifi- cantly lowered. DAT's national dry van rate fell sequentially from $1.84 to $1.81 per mile in August. Dry van rates, however, were up nearly 2 percent in the last week of August, according to a Journal of Commerce analysis of lane rate data in partnership with digital freight broker Loadsmart. The rates don't reflect actual transactions, but what Loadsmart would have charged shippers in top US freight lanes. "When you see a strong end of August, it makes a statement that maybe the freight market isn't as bad as some of the gloom-and-doom folks say," said Mark Montague, DAT's manager of industry pricing. "Diesel rates are 27.6 percent lower than a year ago, too, so some of the lower rates are offset by lower fuel expenses." This might change, however, as a result of the International Maritime Organization's (IMO) 2020 Jan. 1 mandate requiring ships to burn fuel oil containing no more than 0.5 percent sulfur, down from the existing cap of 3.5 percent. Diesel prices could rise if carriers rush to use marine gasoil (MGO) to meet the IMO regulation, which would strain distillate supply. Montague believes a lot will be determined from September through December. Dry van spot rates rose 10 cents during those months in 2013 and 22 cents in 2017; each time a strong year followed. Rates were down in those four months in 2015 Trucking | Rail | Intermodal | Air & Expedited | Distribution Out of the mire Strong Q4 could pull US truckload rates out of the 'muddy middle' By Ari Ashe Contradictory indicators are hindering forecasts for US trucking in 2020.

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