Current Affairs
August 2, 2022
Contract Truck Rates Expected to Fall
Contract truckload rates will likely soften in the coming months
Spot rates indicate a strong dip for contracts is imminent
Zach Strickland, FW Market Expert & Market Analyst Follow on Twitter Saturday, July 30, 2022 3 minutes read Listen to this article 0:00 / 4:56 BeyondWords
Van rates on the truckload contract market will likely soften in the coming months. But, the decline won’t be as marked as what the industry saw on the spot market side.
The spread between spot and contract rates has averaged around record low levels (~-74 cents a mile) since early May. That will put downward pressure on contract rates for bids negotiated in the second half of the year. There is little precedent for such a dramatic difference, but there’s also little evidence historically that contract rates will fall as fast as they increase.
The contract truckload market behaves very differently from the spot market. Volatility is the main difference. That’s driven primarily by the way pricing is negotiated.
The RATES12 index used in this week’s chart is the difference between spot rates less a level of estimated cost of fuel and contract rates. This is done for a more apples-to-apples comparison of the two rates, as contract rates include a portion of fuel cost and pass a lot of it along in the form of a fuel surcharge. This mechanism is largely absent from spot rates.
Contract truckload rates have barely budged since March, but red flags are already appearing
The contract or published rate market is simply an agreement between shipper and carrier that is in place for an extended period of time. The commitment is somewhat tenuous as neither volume nor service is guaranteed in most instances.
The only binding portion is, if the shipper tenders a load(s) to the carrier and the carrier is willing and able to transport the customer’s freight, it will do it for a predetermined price until the expiration of the agreement. Spot rates are negotiated on the spot and are normally only applicable for a few days with minimal volume.
Contract rate agreements typically have a life span of around 12 months but can be longer or shorter. Many shippers transitioned to a shorter procurement cycle during the pandemic thanks to their inability to secure capacity reliably, essentially bidding against one another and driving up rates faster than ever. Contract rates increased ~49% from June 2020 to March 2022.
Since March, there has been minimal movement in contract rates, but they are showing early signs of deterioration, falling about 2% since early June. Spot rates, assuming a base level of fuel cost around $1.20 per gallon, have dropped 27% over the same period. This has created a 74-cent-per-mile difference between the spot (NTIL12) and contract rate (VCRPM1) indices.
In 2019 the spread between spot and contract averaged -24 cents per mile. Contract rates barely moved before falling about 2%-4% in January 2020, which shows that contract rates are less volatile.
The spread today is three times larger than it was in 2019. Shippers may have a stronger appetite for cost reduction after two years of rapid inflation.
A rate decrease will occur if demand-side conditions do not improve
Movements for contract truckload rates will ultimately be decided by the carriers and their need for equipment utilization. And so far, most publicly traded trucking companies have only mentioned minor deterioration at most while reporting strong Q2 results.
Accepted contract load volumes support this for now, showing only a marginal decline in July versus June. Compared to last July, volumes are down 3%-5%.
As for the supply side of the equation, most of the capacity growth over the past two years has been on the small fleet/owner-operator side, which heavily relies on spot market freight. The larger fleet heavy contract market has better structure to maintain elevated rate levels.
That said, the rate differential is too large to sustain for long. Some level of rate decrease will occur if demand-side conditions remain at or below current levels. Judging from history, it would appear a conservatively estimated 3%-5% decrease is all but imminent in the coming months.
About the Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.
SONAR aggregates data from hundreds of sources, presenting the data in charts and maps and providing commentary on what freight market experts want to know about the industry in real time.
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July 26, 2022
New Home Sales Update
New Home Sales & Prices Plunged In June As Pulte Admits Order Cancellations Are Soaring
by Tyler DurdenTuesday, Jul 26, 2022 – 10:06 AM
Amid a plunge in homebuilder confidence, record low affordability, tumbling single-family starts and permits, and multi-decade lows in mortgage applications, it is no surprise that analysts expected a 5.9% MoM plunge in new home sales in June (especially after the surprise 10.7% MoM panic-buying surge in May). The consensus was right in direction but off in magnitude as new home sales plunged 8.1% MoM in June and the 10.7% surge in May was revised down to just +6.3% MoM…
Source: Bloomberg
New Home Sales have fallen for 5 of the last 6 months and the last few months have seen a one-way street of downwards revisions…
The New Home Sales SAAR has tumbled to its lowest since the nadir of the COVID lockdowns in April 2020…
Source: Bloomberg
A potential silver lining is that inventory is finally on the rise with 9.3 months of supply seen in June, up from 8.4 in the prior month.
And the best news of all – the median new home price tumbled 9.5% MoM to $402,400…
With median home price gains slowing dramatically YoY…
This new home sales print comes on the day that Pulte Homes admits buyers have hit a wall and is “dialling back” its spec-home-starts, noting that the homebuilder’s cancellation rate more than doubled to 15% in Q2 from 7% in the year-ago quarter, as soaring home prices and mortgage rates hinder affordability.
“The recent 200-basis point increase in mortgage rates has impacted affordability, but we continue to believe the desire for homeownership is high and the long-term outlook for housing remains positive,” said CEO and President Ryan Marshall.
Source: Bloomberg
Most notably perhaps was Marshall’s admission that the uptick in cancellations has been in the last 30-60 days, perhaps mirroring the plunge in homebuilder confidence (and Walmart) as the ‘strong American consumer’ appears to have pulled back into its shell.
July 26, 2022
New Home Sales Update
New Home Sales & Prices Plunged In June As Pulte Admits Order Cancellations Are Soaring
by Tyler DurdenTuesday, Jul 26, 2022 – 10:06 AM
Amid a plunge in homebuilder confidence, record low affordability, tumbling single-family starts and permits, and multi-decade lows in mortgage applications, it is no surprise that analysts expected a 5.9% MoM plunge in new home sales in June (especially after the surprise 10.7% MoM panic-buying surge in May). The consensus was right in direction but off in magnitude as new home sales plunged 8.1% MoM in June and the 10.7% surge in May was revised down to just +6.3% MoM…
Source: Bloomberg
New Home Sales have fallen for 5 of the last 6 months and the last few months have seen a one-way street of downwards revisions…
The New Home Sales SAAR has tumbled to its lowest since the nadir of the COVID lockdowns in April 2020…
Source: Bloomberg
A potential silver lining is that inventory is finally on the rise with 9.3 months of supply seen in June, up from 8.4 in the prior month.
And the best news of all – the median new home price tumbled 9.5% MoM to $402,400…
With median home price gains slowing dramatically YoY…
This new home sales print comes on the day that Pulte Homes admits buyers have hit a wall and is “dialling back” its spec-home-starts, noting that the homebuilder’s cancellation rate more than doubled to 15% in Q2 from 7% in the year-ago quarter, as soaring home prices and mortgage rates hinder affordability.
“The recent 200-basis point increase in mortgage rates has impacted affordability, but we continue to believe the desire for homeownership is high and the long-term outlook for housing remains positive,” said CEO and President Ryan Marshall.
Source: Bloomberg
Most notably perhaps was Marshall’s admission that the uptick in cancellations has been in the last 30-60 days, perhaps mirroring the plunge in homebuilder confidence (and Walmart) as the ‘strong American consumer’ appears to have pulled back into its shell.
July 18, 2022
Water Level on the Rhine
Germany’s Energy Crisis About To Get Even Worse As Rhine Water Levels Plummet
by Tyler DurdenMonday, Jul 18, 2022 – 06:55 AM
What has already been a year from hell for Germany, which is suffering energy hyperinflation as a result of Europe’s sanctions on Russia, and which is “facing the biggest crisis the country has every had” according to the president of the German employers association, is about to get even worse as the declining water level of the Rhine river, which has historically been a key infrastructure transit artery across Germany, continues to fall and as it does, the flow of commodities to inland Europe is starting to buckle threatening to make an already historic crisis even worse.
The alarming lack of water is contributing to oil product supply problems in Switzerland and preventing at least two power plants in Germany from getting all the coal they need, and what’s more, the continent’s sizzling summer temperatures are forecast to climb even higher in the coming week, leading to even lower water levels.
The 800-mile (1,288-kilometer) Rhine river runs from Switzerland all the way to the North Sea and is used to transport tens of millions of tons of commodities through inland Europe. But with water levels at their lowest for the time of year in 15 years, there is a limit how much fuel, coal and other vital cargo that barges can carry up and down the river.
Low water levels on the Rhine River mean that barges hauling middle distillate-type oil products – typically gasoil/diesel – past Kaub in Germany, are limited to loading about 30% of capacity, according to maritime brokerage services firm Riverlake.
A barge loading in the energy hub of Amsterdam-Rotterdam-Antwerp (or ARA), which can haul 2.5k tons when fully laden, is restricted to taking on about 800 tons if sailing to destinations beyond Kaub. As shown below, the water level at Kaub has fallen in recent days and is at its lowest on a seasonal basis since at least 2007. According to Riverlake, further decreases in loading volumes for barges hauling middle distillates from ARA to inland destinations beyond Kaub are expected in coming days.
This – coupled with capacity issues on German railways – has meant that Switzerland is struggling with supplies of oil products, mainly diesel/heating oil, according to Avenergy Suisse, the landlocked country’s organization for fuel importers.
Low Rhine water level combined with capacity problems on German railways are the reasons, managing director Roland Bilang told Bloomberg, adding that supply problems mainly concern diesel/heating oil.
“It has happened from time to time in the past that temporarily not enough mineral oil products could be transported to Switzerland and therefore the compulsory stocks had to be tapped.” Biland recommends private households fill their heating oil tanks early.
Meanwhile, Bloomberg reports that power plants at Mannheim and Karlsruhe in Germany, operated by Grosskraftwerk Mannheim and EnBW, have been struggling to source coal because of the shallow water – just as the country frets that Russia won’t restart flows on a key gas pipeline. The companies said their generation operations aren’t currently affected.
Because of the tight coal market and low Rhine levels making it hard to deliver the fuel, only 65% of Germany’s coal capacity will be available in coming months, according to S&P Global Commodity Insights analyst Sabrina Kernbichler. This is bad news for a country whose biggest energy utilities are starting to drain natgas reserves as a result of the halt in Nord Stream 1 shipments, jeopardising millions of Germans with freezing should the country fail to restock fully ahead of the winter.
Germany also imports oil products up the Rhine, including fuel and heating oil. There’s currently no shortage of gasoline or diesel in the country, according to Herbert Rabl, spokesman for Tankstellen-Interessenverband e.V., which represents fuel station leaseholders and owners in Germany.
Shell – which owns the Wesseling and Godorf refineries along the Rhine – is monitoring the situation, according to a spokesperson.
https://www.zerohedge.com/markets/germanys-crisis-about-get-even-worse-rhine-water-levels-plummet
July 18, 2022
Water Level on the Rhine
Germany’s Energy Crisis About To Get Even Worse As Rhine Water Levels Plummet
by Tyler DurdenMonday, Jul 18, 2022 – 06:55 AM
What has already been a year from hell for Germany, which is suffering energy hyperinflation as a result of Europe’s sanctions on Russia, and which is “facing the biggest crisis the country has every had” according to the president of the German employers association, is about to get even worse as the declining water level of the Rhine river, which has historically been a key infrastructure transit artery across Germany, continues to fall and as it does, the flow of commodities to inland Europe is starting to buckle threatening to make an already historic crisis even worse.
The alarming lack of water is contributing to oil product supply problems in Switzerland and preventing at least two power plants in Germany from getting all the coal they need, and what’s more, the continent’s sizzling summer temperatures are forecast to climb even higher in the coming week, leading to even lower water levels.
The 800-mile (1,288-kilometer) Rhine river runs from Switzerland all the way to the North Sea and is used to transport tens of millions of tons of commodities through inland Europe. But with water levels at their lowest for the time of year in 15 years, there is a limit how much fuel, coal and other vital cargo that barges can carry up and down the river.
Low water levels on the Rhine River mean that barges hauling middle distillate-type oil products – typically gasoil/diesel – past Kaub in Germany, are limited to loading about 30% of capacity, according to maritime brokerage services firm Riverlake.
A barge loading in the energy hub of Amsterdam-Rotterdam-Antwerp (or ARA), which can haul 2.5k tons when fully laden, is restricted to taking on about 800 tons if sailing to destinations beyond Kaub. As shown below, the water level at Kaub has fallen in recent days and is at its lowest on a seasonal basis since at least 2007. According to Riverlake, further decreases in loading volumes for barges hauling middle distillates from ARA to inland destinations beyond Kaub are expected in coming days.
This – coupled with capacity issues on German railways – has meant that Switzerland is struggling with supplies of oil products, mainly diesel/heating oil, according to Avenergy Suisse, the landlocked country’s organization for fuel importers.
Low Rhine water level combined with capacity problems on German railways are the reasons, managing director Roland Bilang told Bloomberg, adding that supply problems mainly concern diesel/heating oil.
“It has happened from time to time in the past that temporarily not enough mineral oil products could be transported to Switzerland and therefore the compulsory stocks had to be tapped.” Biland recommends private households fill their heating oil tanks early.
Meanwhile, Bloomberg reports that power plants at Mannheim and Karlsruhe in Germany, operated by Grosskraftwerk Mannheim and EnBW, have been struggling to source coal because of the shallow water – just as the country frets that Russia won’t restart flows on a key gas pipeline. The companies said their generation operations aren’t currently affected.
Because of the tight coal market and low Rhine levels making it hard to deliver the fuel, only 65% of Germany’s coal capacity will be available in coming months, according to S&P Global Commodity Insights analyst Sabrina Kernbichler. This is bad news for a country whose biggest energy utilities are starting to drain natgas reserves as a result of the halt in Nord Stream 1 shipments, jeopardising millions of Germans with freezing should the country fail to restock fully ahead of the winter.
Germany also imports oil products up the Rhine, including fuel and heating oil. There’s currently no shortage of gasoline or diesel in the country, according to Herbert Rabl, spokesman for Tankstellen-Interessenverband e.V., which represents fuel station leaseholders and owners in Germany.
Shell – which owns the Wesseling and Godorf refineries along the Rhine – is monitoring the situation, according to a spokesperson.
https://www.zerohedge.com/markets/germanys-crisis-about-get-even-worse-rhine-water-levels-plummet
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