The 2018 trucking spot market was a wild ride. Rates remained unusually high early in the year and stayed elevated before climbing again during the summer as peak season hit. The bigger story was the rate volatility. The lane from Atlanta to Philadelphia is one of the best examples of this in the country as the cost of shipping in this lane can rise extremely fast as it did this past summer, increasing over $1 per mile in base rate (excluding fuel surcharge) from $2.50 in early May to $3.58 in late June. The rate dropped back even faster, hitting $2.45 per mile by the end of July when the market slackened. Since this summer the freight market has had little disruption other than the standard holiday capacity reductions. By the end of January, the rate in this lane had hit its lowest point since February of 2016 at $1.44 per mile.
To put it in perspective, the rate on January 29th of 2018 was $2.19, a 35% difference in a year. On January 30th of 2017 the rate was $1.59. The fact the rate has dropped below the 2018 level is significant, suggesting many of the rate increases the industry experienced in 2018 are being undone.
Wrapped around the chart’s main data point, the average rate per mile, there is a financial charting tool known as the Bollinger Band. It was developed in the 1970s for the purpose of easily recognizing daily volatility of a stock. As the band gets tighter, the top line and bottom line get closer together or squeeze, volatility is reducing. Conversely, as the band expands, there is increasing volatility in the daily movement. Technical analysts would use this squeezing or expanding as buy or sell signals. For the purposes of this chart it is simply being used to illustrate the volatility of the daily spot price.
To give a quick simple definition of what the Bollinger Band is: the middle line (yellow) is a 10-day simple moving average or 2 weeks’ worth of rates. The top line is the moving average plus one and a half standard deviations. The bottom line is the moving average less one and a half standard deviations. You do not need to know what those are to understand what the chart is saying.
In the fall of 2018, the bands were relatively compressed in what many thought was an uncertain market. There was little change in the band spacing from September through mid-December, ironically or maybe not, about the time of the soft ELD mandate. Rates surged during the Christmas holiday period and recovered only slightly as the bands remained relatively wide through the first half of 2018.
Through the back half of 2019 the bands look like the scribbling of a 3 year-old as rates bounced wildly in what many felt to be a slowing market as capacity returned. Essentially, the wider the band, the more uncertain shippers, brokers, and carriers are about judging the market.
The rate in this lane hit its lowest point in almost three years this January, but everyone seemed far more certain about the 2016 rate than the current version. Note the rate has since recovered to $1.77, a 23% increase in a matter of days.
Spring is always an uncertain time of year for freight movement because no one really knows when volumes will return in earnest. Weather patterns play a big role driving seasonal movements such as agricultural freight. The Atlanta to Philadelphia rate had a range from $1.61 to $3.58 last year, a difference of $1.96. In 2017 the range was $1.43 to $2.92, a difference of $1.48. With all the technology entering the space, the industry is becoming increasingly transparent, this does not mean it will become less volatile as a result.
About Indices presented in this article
(SONAR: DATVF.ATLPHL) DAT Van Freight Rate Index - Atlanta to Philadelphia - DAT developed the van freight rate indices measuring the average spot rate for dry van freight in seven lanes and four buckets that measure the average spot price in regions. These rates do not include fuel or any assessorial charges due to the fact they will be used to settle freight futures releasing this March. The methodology has to be consistent and clean.
(About 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 the Sultan of SONAR 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.
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