Western US shippers face steeper trucking costs despite weak freight demand

Shippers in the western US are paying substantially more for trucking services than their
counterparts in other regions, even as freight volumes remain weak, highlighting how capacity
constraints and geography are increasingly influencing transportation costs.

Shipper expenditures nationwide rose 28.1% year over year in the second quarter, according to
the US Bank Freight Payment Index released Aug. 4. But the national average masks sharp
regional differences, particularly in the Southwest, where spending surged despite a steep
decline in freight volumes.

Shipper spending rose 39.9% year over year in the Southwest and 35.9% in the West.
Transportation costs increased at a slower pace elsewhere, rising 26.5% in the Northeast,
23.7% in the Southeast and 22.9% in the Midwest, according to US Bank.

The increase in Southwest spending did not come with stronger freight demand. Shipment
volumes in the region plunged 20% from a year earlier during the quarter, compared with a
2.8% decline nationwide.

“It’s a signal that capacity conditions can have a significant impact on freight costs even when
underlying demand isn’t growing,” Bobby Holland, director of freight business analytics at US
Bank, said in a statement.

The divergence suggests that shippers can face rising transportation costs even when there is
less freight to move if available trucking capacity tightens in a particular market.

Holland said the combination of falling shipment volumes and rising costs in the Southwest may
also reflect a US crackdown on cabotage by Mexican drivers moving freight within the country,
potentially restricting available trucking capacity in the region.

Fuel adds pressure to shipper costs

Rising fuel prices are adding another layer of cost pressure even as the US truckload spot
market shows signs of seasonal softening.

The average US retail diesel price was nearly 41% higher than a year earlier after reaching
$5.348 per gallon in the first week of August, according to the US Energy Information
Administration.

Higher diesel prices translate into larger fuel surcharges for shippers, meaning their total
transportation costs can rise even when underlying trucking rates soften.

That distinction is visible in the spot market. The national average US dry-van spot rate tracked
by DAT Freight & Analytics fell 6 cents from the previous week to $2.32 per mile, excluding fuel
surcharges, for the week ending Aug. 2.

The weekly decline, however, contrasts with much stronger rates compared with a year ago.
Data from FTR Transportation Intelligence and Truckstop.com showed dry-van spot rates in the
final week of July were about 39% higher year over year, excluding fuel surcharges.

Together, the indicators point to a freight market in which shippers are paying considerably more
than they did a year ago even though freight demand remains uneven and spot rates have
begun to ease from recent levels.

The regional data make that disconnect particularly stark. In the Southwest, a 20% drop in
shipment volumes accompanied a nearly 40% increase in shipper spending, suggesting that the
amount of freight moving through a market is no longer enough on its own to explain what
shippers are paying to move it.