How Understanding Spot Rates and Truck Orders Can Save You Money
Shippers must understand that spot rates and class 8 truck orders are closely tied: what happens to one will affect the other. If spot rates go up, so do truck orders. If truck orders go down, so do spot rates.
What Are Spot Rates and Class 8 Truck Orders?
As a quick refresher, a spot rate is the current market value of an asset at the moment of the quote. Truck orders are the number of units requested at a given time.
How are Spot Rates and Truck Orders Related?
At the end of the day, though, is this relationship been rates and Class 8 orders really something shippers need to concern themselves with?
"The answer is an emphatic yes," Tim Denoyer, vice president and senior analyst at ACT Research, told Supply Chain Dive in an interview.
Shippers need to meet their budgets, Denoyer said. If a shipper understands where Class 8 orders are and where spot rates are, they will have a decent forecast of where contract rates are headed.
Spot rates can act as a leading indicator of contract rates. For every 2% change in spot prices, the contract rates will change by about 1%, Denoyer said. Changes in contract rates tend to lag behind changes in spot rates by about six months. There also needs to be a sustained trend in spot rates to affect contract rates, he said.
Denoyer said ACT Research advised shippers to hold off on signing contracts earlier this year and suggested they move freight into the spot market while rates were low to save money. "Now, you know, if a capacity crunch were to come along, then we would advise the exact opposite," he said. "We say you do not want spot exposure because it could spike."
Class 8 orders can help shippers get a picture of the market's capacity, Denoyer explained. Every year, the trucking market averages 135,000 to 140,000 new Class 8 trucks sold in the U.S. If this number is larger or smaller, it could signal an expansion or contraction in capacity. This year, capacity has expanded because the cash flow for carriers was strong in 2018 and they bought more trucks. (It's important to note not all orders signal growth in capacity. Replacing old trucks differs from growing a fleet. Figuring out this replacement number is a matter of tracking Class 8 trends over time.)
Understanding the relationship between spot rates and truck orders can help you save money when you need to ship. For more insight on truck orders and how you can take advantage of spot rates, contact our team.
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