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Home»Finance»Fuel price jump boosts rates but threatens trucking capacity
Finance

Fuel price jump boosts rates but threatens trucking capacity

October 1, 2023No Comments4 Mins Read
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Fuel price jump boosts rates but threatens trucking capacity
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Photo: Jim Allen - FreightWaves

Photo: Jim Allen – FreightWaves

Chart of the Week: National Truckload Index, National Truckload Index Linehaul Only, Diesel Truck Stop Fuel Price – USA SONAR: NTI.USA, NTIL.USA, DTS.USA

The average retail price of diesel (DTS), the primary fuel for Class 8 trucks, has increased 16% since the end of July — the largest and fastest increase since October of last year. The rapid jump in fuel costs is masking the fact the trucking market is still deteriorating.

Rising diesel prices have propped up truckload spot rates in September, masking their decline toward the end of the quarter. Looking at the average spot rate for dry van loads represented by the National Truckload Index (NTI), rates increased around Labor Day and are looking to finish the month ahead of where they started.

Removing the total estimated cost of fuel from that number (NTIL), spot rates are actually trending lower, which is unusual for the end of the third quarter. This could accelerate the amount of capacity exiting the market, shrinking the timeline companies have to enjoy a historically loose transportation environment.

Demand has been on the rise over the past several months. The total number of tenders, shipper requests for truckload capacity, are up ~15% over April. The rise in demand has had a negligible impact on carrier availability as national rejection rates (OTRI) remain in a deflationary zone below 4%.

Capacity has tightened slightly over this period, but not to the point where there has been significant upward pressure on rates. Typically sustained OTRI values above 6% are required to have a long-term impact on rates.

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The takeaway is that there is still not enough freight to support the available capacity and sharply rising fuel prices will only make the environment more challenging for carriers, especially ones who rely on spot market volumes.

It is difficult to pass fuel costs along quickly on the spot market since carriers are bidding against one another on the open market. Many shippers expect last week’s rate to be the baseline. In a loose capacity environment, it is extremely difficult to raise rates, even when your costs are rising.

Contract freight is also exposed to sharply rising fuel costs as retail prices tend to move much slower than the wholesale or rack prices that many larger fleet fuel purchases are based on. The spread (FUELS) between retail (DTS) and rack (ULSDR) has shrunk significantly since June.

The bottom line is that carrier costs have risen quickly in a market that does not allow for price increases. This will exacerbate the existing trend of carrier exits, which was already expected to jump this winter as it seasonally does.

For shippers, it is only one more reason to prepare for a tighter market in 2024. Even if demand does not hold, the rate of capacity’s exodus will eventually catch up.

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.

See also  ‘Economic Disaster’: Biden’s Budget Dreams Would Add Even More Fuel To Sky-High Inflation, Experts Say

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.

The FreightWaves data science and product teams are releasing new datasets each week and enhancing the client experience.

To request a SONAR demo, click here.

The post Fuel price jump boosts rates but threatens trucking capacity appeared first on FreightWaves.

boosts Capacity fuel jump Price rates Threatens Trucking
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