Flatbed Freight Market Report - July 2021

Jul 1

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The team at PDQ America is committed to helping our customers experience success by meeting their needs for freight capacity. That’s why we’ve put together this flatbed freight market report for the industries we serve most. In this report you’ll find the latest information available about what’s happening in oil & gas, manufacturing, steel, and construction & infrastructure as well as insight about what’s happening in today’s freight market.

Oil & Gas

Oil Field Service (OFS) operators have had a tough 2020[1], with investors calling for less drilling and less CapEx spending even before the disastrous scale of COVID-19 became apparent. Flatbed operators had to contend with the same decreases in volume across 2020 — but things appear to be looking up as of June 2021.

While the global refinery throughput fell by 7.4 mb/d over 2020[2], it’s expected to recover half of that by the end of 2021. And despite the number of COVID-19 cases still rising in some populous countries like India — global oil demand has continued to outpace supply through May.

The result has been a worldwide withdrawal from petroleum product and crude oil inventories — signaling a steady future for flatbed operators as well. As industry suppliers in the oil and gas sectors rely on an established set of carriers, companies with established relationships[3] should have no trouble in 2021.

The consumption of liquid fuels and petroleum has increased by 11.9 million b/d compared to May 2020 — though it’s still to reach May 2019 levels.

The production of crude oil in OPEC countries has reached its highest point since April 2020[4], with production targets being raised to meet demand. And while the US Energy Information Administration (EIA) expects oil supply to start outpacing demand by Q1 2022, all indicators are spelling out a positive return to form for the flatbed operators that rely on the oil and gas industries.

The increased demand for petroleum products and steeper crude oil prices have resulted in higher fuel prices over the summer of 2021 — not a great fact for the trucking industry as a whole.

However, this isn’t poised to be a long-term problem — the EIA doesn’t expect this price hike to last throughout the year. The rising OPEC crude oil supply and production from the U.S. tight oil companies should gradually meet demand and thus reduce prices. By September, retail gasoline prices are likely to fall to $2.62 per gallon on average.

Manufacturing

In April 2020[5], the Institute of Supply Management (ISM) had reported a horrific downward spiral of the U.S. manufacturing sector, along with a recession in the broader economy — all triggered by the sudden shutdowns and social distancing measures.

Since then, most industries have begun making a problematic ascent from the depths of the pandemic — and while manufacturing has more than enough demand and a strong outlook, some “growing pains” persist throughout 2021.

The ISM has reported that the manufacturing sector had exceeded expectations with a 61.2% PMI in May[6] — a sign of rude health compared to wavering index numbers in May 2020. However, the expectations made by panelists of the Business Survey Committee back in December have come true: logistics constraints, product shortages, and price increases are the current major issues.

In May, the ISM reported that the U.S. factory output grew for 12 consecutive months — a clear indicator of economic recovery in the manufacturing sector.

Consequently, flatbed spot rates have exhibited rude health as well. Sure, flatbed spot rates have plateaued[7] for five weeks as of June 2021 — however, this is only after a fantastic 12-month run that has coincided with growth in the manufacturing industry.

While flatbed carriers are enjoying surging demand, manufacturers are less thrilled with the incredibly tight flatbed market and higher spot rates — and the struggling supply side of the flatbed sector.

DAT describes 2021 as the year of the “supply chain domino effect[8],” as many disparate factors come together to put more strain on supply chains. It’s a perfect storm, with everything from constrained truck production due to semiconductor shortages to a lack of drivers, many of which are looking for alternative employment opportunities.

Despite these supply chain bottlenecks in the manufacturing industry, the ISM concludes that facing an obstacle course of issues is preferable to fighting to survive — which was the reality for many companies a year ago.

As the economy continues to expand and the pandemic further loosens its grip, these issues will likely be ironed out.

Steel

The American steel industry is just one of many forced to shutter its production over a year ago. As of June 2021, the drastic reopening of the economy has left steel mills struggling to resume production quickly enough to meet demand.

In the last week of May, domestic production of raw steel was 50.1% higher than in 2020. Translated to truckload terms, that’s 24,500 truckloads more this year.[9]

While steel mills haven’t reached an output high enough to satiate demand, they’ve still been ramping up production. As a result, compared to May 2020, domestic capacity utilization has risen by 14% — an excellent sign for flatbed carriers.

Steel production isn’t the only source of work for flatbed operators — imports are ramping up as well. Imported net tonnage has increased by 5.1% compared to the first four months of 2020. And that’s a 60.5% volume increase since the beginning of 2021 — a tall order for existing flatbed capacities, which have become increasingly tight.

Even with the national spot market load volumes being lower for the last five weeks, flatbed capacity doesn’t seem to be easing — and spot rates had been climbing for a while. After an average increase of $0.08/mile per week, they had reached a record high average of $3.72/mile.

Throughout June, flatbed spot rates began to plateau — however, they’re still $0.30/mile higher than June 2018, when COVID-19 wasn’t a market force — and $0.87/mile higher than in June 2020.

Construction Industry

The beginning of the COVID-19 pandemic saw a lull in home buying — but it lasted far shorter than most in the construction industry expected.

According to the National Association of Home Builders, home buying actually soared throughout 2020 and 2021 — as consumers that had enough savings and income exited urban areas for suburbs and looked for ways for their families to spread out in social distancing conditions.

Interest rates reached historic lows, making home buying even more accessible — and driving the demand for new homes sky-high. Seeing as the construction industry struggled to meet demand even before the pandemic, this pushed prices on supplies and labor upward.

The most significant price changes were soaring lumber prices — going from $400 per MFBM (thousand board feet) at the beginning of 2020 to $1,600 in May of the same year. Since then, prices have stabilized at around $800 — but that’s still double compared to their pre-pandemic levels.[10]

This massive spike in lumber prices will soon represent a headwind for the construction industry, which is already noticeable from a drop in single-family housing construction by 13% in April.[11]

Building permits for single-family housing also dropped by 4% in the same period — and while permit numbers reached a 12-month high in January 2021, the rising costs are clearly catching up with construction companies.

The sharp decrease experienced by the industry in April is likely due to a lull in production triggered by labor and land shortages, along with high lumber and commodity prices.[12] These rising costs will slow down construction activity in the residential sector for the near future — which isn’t good news for flatbed carriers relying on construction companies.

Still, the United States saw 408,000 more homes built[13] in April 2021 compared to April 2020 — so the flatbed sector hasn’t suffered from falling demand just yet. However, recent numbers and predicted trends show potential headwinds in the future.

On the other hand, government spending on infrastructure projects is set to revitalize that construction industry sector. On June 24, President Joe Biden announced a bipartisan agreement on his infrastructure plan, resulting in $559 billion being spent on infrastructure projects over the next five years.[14]

This will give construction companies an excellent foundation for growth in the next half-decade, as bridges and roads are revamped and rebuilt, and buildings are modernized. In addition, smaller construction-related companies will benefit — from companies providing contractor services to the trucking industry, which will be vital for the logistical support of these projects.