Q4 freight rates freight peak season

The 2019 freight peak season is here and as a result you can expect to see the typical traces of fluctuations to freight rates during this period, running from late August through December.

However, the typical spike will likely be less extreme than years prior, particularly when compared to the jump seen in 2018.

For the complete picture, let’s look at what is affecting the market during the 2019 freight peak season and for the remainder of Q4.

What to Expect During 2019 Freight Peak Season

As the market continues to soften, even with increased volume, freight rates will not be subject to as much volatility as they have been in the past. Shippers should expect to see higher rates than they did this summer. But compared to this period in 2018, rates will not be as inflated.

Despite a more subdued than average peak season rate hike, there is another characteristic of the period that will still be present in 2019. Service failures.

During peak, it is typical for carriers to overcommit to freight. Meaning they take on more orders than is feasible for their operation. Because of the increased demand for freight services and an increase in available orders, carriers often accept more freight than they can reasonably haul.

Which leads to orders being left on the dock and subsequent late deliveries—a bad scenario for shippers of retail freight.

To mitigate possible disruption to your delivery schedule, it is imperative that you work with reliable and proactive logistics partners.

Here are some specific steps to prevent against service failures:

  • Don’t book the cheapest carrier – bottom-dollar rates come with poor service
  • Plan as much as possible; lead time is essential
  • Be cognizant of current market conditions in your industry
  • Understand how those conditions may affect transportation

Tariffs Volumes Hit Intermodal Logistics Market

The ongoing trade war between the Trump Administration and China has sent repeated shockwaves through the logistics world. Since their proposal in 2018, shippers have attempted to dampen the effects on their supply chains by importing goods ahead of the duties to beat the added cost burden.

A newly instituted round of 15% tariffs took effect at the beginning of September 2019. Their reach is scheduled to be expanded to additional goods by December 15, 2019. In total, this will put about $300 billion worth of Chinese imports under the tariff umbrella.

“Retailers are still trying to minimize the impact of the trade war on consumers by bringing in as much merchandise as they can before each new round of tariffs takes effect and drives up prices,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said in a statement. “That’s the same pattern we’ve seen over the past year.”

These rushes have shrunk capacity, impacted freight rates, and strained the industry around ports where goods from overseas are brought into the US. Moreover, the inventory build-ups have created issues for warehousing capacity and service, specifically at ports like Long Beach.

While we are a period of normalization in the ports, uncertainty still exists, which is reflected by volume shifting from the West to the East Coast.

Additionally, the increased volume illuminates an issue that plagues the intermodal industry.  How can intermodal transportation develop to handle future volumes more efficiently?

We have seen strides in reducing dwell time and increasing train speeds, but more evolution is necessary for the industry to modernize effectively.

According to information presented at the 2019 FTR Transportation Conference, “If trains can increase their average speed by as little as 1 mph, the industry can increase capacity by an estimated 2.5%. And by reducing detention by 30 minutes, the industry can increase capacity by 5.5% and continue to improve to gain a share of over-the-road transportation options’ share of shipping.”

Newly Proposed Tariffs Widen Trade War

Along with the proposed Chinese duties, the Trump Administration has recently announced its plans to institute a retaliatory round of tariffs aimed at the European Union (EU) for illegal government aid to Airbus. According to the Office of the United States Trade Representative, the tariff rates will be instituted at 10% on large civil aircraft and 25% on agricultural and other products beginning on or near Oct. 18.

The long-term tariffs’ effects on shippers and freight rates remains to be seen, but it is likely that we could see similar impact to those created from the fallout of surrounding the trade situation with China.

But, the immediate impact of the duty hike has added an increased burden to consumers as companies facing additional tariff rates have shifted costs to customers. This is especially present in the specialty foods market, as purveyors say they are planning to pass along the 25% tariff increase onto consumers.

“The timing is just horrible,” explained Richard Sutton, a partner and importer St. James Cheese Company in New Orleans. “A lot of folks have had their holiday lineup set since back in July, and all those prices are going to change. They have to go back and rethink their price points.”

Sutton continued in the article published by the Specialty Food Association, that he is hopeful some of the added cost burden can be absorbed in the supply chain especially in the short term. Although, he is doubtful that suppliers can hold off price increases for an extended period.

“There is absolutely no question we are going to have to raise prices eventually,” he said.

Items included in the sanctions are cow’s milk and sheep’s milk cheeses, wine, olive oil and other olive products, pork products, seafood and other food items. The tariffs are effective beginning on Oct. 18 for all products that arrive in the U.S.

Specialty food consumers and producers who incorporate the listed products in their manufacturing should expect to see the prices reflected in the market.

Q4 Spot Market Freight Rates

Historically, shippers tend in increase output the last week for the third quarter. This year the market followed suit.

“We usually see a boost in freight volumes in the last week of the quarter, and last week was no different,” according to Mark Montague of DAT in his Sept. 30 article. “Van freight volumes were up 7%, providing positive momentum going into the fourth quarter.”

However, despite the increase in volume late Q3, freight rates did not increase comparatively.

“The national average rate increased 1₵, but that was mainly due to an increase in the fuel surcharge,” he continued.

The fact that national freight rates barely increased with volumes indicates that there is adequate capacity to accommodate influxes in demand.

Despite a strong end to Q3, volumes have been down during the early weeks of October. Citing data compiled by multiple research firms, Jeff Berman of Logistics Management states that “DAT Trendlines report showed a more quiet beginning to the fourth quarter for spot market activity.”

He goes on to say that the slow activity “was primarily in the form of declining load-to-truck ratio for vans, reefers, and flatbeds.”

Shippers reduced on hand inventory late Q3, and as a result over all available loads declines for the first weeks of Q4.

As a result, there is excess capacity in the market, and it appears to be a good time to negotiate lower truckload rates on the spot market. We expect this lull to continue through late October through mid-November.

However, be prepared for the capacity crunch that will most likely occur before, during and after Thanksgiving. As drivers prepare to take time off for the holiday, shippers will most likely rush to reduce inventory. We expect to see load to truck ratios that are more favorable to the trucking companies during this period.

Zipline Logistics’ Regional Roundtable

Zipline operates with a unique carrier team setup, splitting our experts into four regions for optimal service. Each group oversees freight that enters their region and plans for specific market trends in their respective states. Here is what each region is seeing currently and for Q4 2019:

Southeast Logistics

It is the time of year when all freight heading south from the Midwest and Northeast will see an increase in prices especially for refrigerated freight.  Capacity is still available but backhaul freight out of the South is not abundant. Rates out of Texas and Florida are dropping because of a lack of volume and carriers will need to cover their costs going into these areas. Short runs around the southeast are relatively easy to move. Anything out of Florida can be taken for low cost and index tends to be accurate from this area.

Midwest Logistics 

Capacity is currently abundant in most areas of the Midwest; however, it will soon be hard to book shipments inbound and outbound to and from Wisconsin, Minnesota, and North Dakota as carriers will likely begin to avoid the cold temperatures and winter weather as it approaches.

We are experiencing some variability out of the Northeast as capacity varies with shipping volumes, but overall market conditions are stable. Loads from the Southeast to the Midwest are highly desirable and tend to get covered very easily for good rates.

Northeast Logistics

Outbound Chicago to the Northeast is more difficult than it was a month or two ago, especially loads going to the high Northeast (VT, ME, NH). Loads outbound from the west coast are difficult to cover due to retail season putting strain on long-haul capacity.

Freight out of New Jersey and Massachusetts that is destined for other Northeast locations is running smooth with regionalized carriers. We expect winter to be very cold with abundant inclement weather this year and we anticipate multiple capacity events as a result. Expect loads outbound from the high Northeast to be especially difficult to cover during the winter months.

West Coast Logistics

Los Angeles is slowing down when it usually picks up this time of year and we expect it to stay slow in this market until the end of the year. Outbound Oregon-Washington capacity is getting tighter and will stay tight until the end of the quarter.

Rates are staying consistent back to Los Angeles from most of the country (besides OR/WA) for the time being. However, we could see the rates start to rise into Los Angeles if it continues to stay quiet as carriers will attempt to make up for lost revenue.

Stay Up to Date with the Logistics Industry 

Want to keep up to date with the most recent news affecting freight rates? Remain in-the-know of transportation market updates by signing up for Zipline’s monthly e-newsletter.

Join Our Enewsletter and Stay in the Know