Demand continues to exceed capacity, as DAT barometers still point to strong growth

truck speeding blur shutterstock.jpg

After setting one record high after another in the early weeks of 2018, the weekly DAT Dry Van and Reefer Barometers have pulled back slightly (as small trucking companies began to learn how to use ELDs and added capacity back into the marketplace), before stabilizing in a strong growth range. Meanwhile, the weekly DAT Flatbed Barometer set one record high after another through June and has only begun to pull back slightly in the last two weeks. All three modes of truckload freight are reflecting an environment in which demand exceeds capacity by a wide margin. DAT® Trucking Freight Barometers are now available to subscribers of FreightWaves SONAR.

numbers.png
  • The Dry Van Weekly Barometer is predicting stronger contract pricing in the coming months. Even though it has pulled back slightly from extreme highs, it continues to reflect one of the highest levels of demand in excess of capacity in the history of the barometer.
  • Similar to Dry Van, the DAT Reefer Weekly Barometer is also continuing to predict stronger contract pricing in coming months. Even though it has pulled back slightly from extreme highs, it continues to reflect one of the highest levels of demand in excess of capacity in the history of the barometer.
  • The DAT Flatbed Weekly Barometer is predicting extra-ordinary levels of contract pricing in coming months.  After moving ever higher and setting one record after another over the last six months, it has pulled back very slightly for the last two weeks.

(For each mode - Dry Van, Reefer, and Flatbed - we have constructed the index to function similar to the ISM indices in that a value of 50 serves as the value of “neutral” or “in-balance.” Values above 50 indicate that demand exceeds capacity, while values below 50 indicate that capacity exceeds demand. Magnitude matters, i.e., 56 is better than 54, and 42 is worse than 48.)

The DAT Dry Van Barometer

Weekly – after breaking equilibrium (50) fifty-six weeks ago, the weekly barometer established a succession of ever-higher levels. Although the current reading of 59.9 is not quite at the extreme levels of capacity tightness experienced in late January and early February (above 65.0), there are still far more loads than trucks in most lanes in most parts of the country.  The Barometer’s high level for this recovery came earlier this year in a seasonally weak period for demand (February is the weakest freight month of the year). The Barometer began to come down slightly as truckers (mostly small fleets and owner operators) who had just recently adopted ELDs began to learn how to optimize their capacity despite the devices. More recently the Barometer has begun to rise again as the rate at which demand is growing is faster than the rate at which new ELD users are recapturing capacity. The Barometer’s current level should bode well for carriers seeking higher pricing in the 2018 bid season. The Dry Van Weekly Barometer continues to predict stronger contract pricing in coming months.

Exhibit 1

chart 1.png

We have had questions about the historical track record of the DAT Freight Barometers and the predictive value. We assert that this proprietary method of weighing the balance between demand and capacity predicts both the direction and magnitude of changes in spot pricing. We also assert that the direction, magnitude, and duration of changes in spot pricing, predict the direction and magnitude of changes in contract pricing.

Exhibit 2

chart 2.png

Plotting the nominal spot price against the Barometer illustrates the predictive value.

Exhibit 3

chart 3.png

The % change in spot vs. the Barometer shows the predictive value even more clearly.

The spot price is predictive of the contract price, and we find the gap between the spot price and the contract price useful in assessing / predicting the margins reported by most of the large publicly held truck brokers, and the logistics divisions of asset-based truckers. We should note that the spot price, after being above the contract price in December, January, and most of February, is back below contract. This is more a function of the increase in contract price than a reduction in the spot price.

Exhibit 4

chart 4.png

As most industry participants know, spot leads contract on the way up and down.  

 

The DAT Reefer Barometer

Weekly – At 61.3, it is above 50 for the fifty-fifth week in a row. Similar to the Dry Van segment, the current reading is not at the extreme levels of capacity tightness experienced in late January and early February (above 65.0), but there are still far more loads than trucks in most lanes in most parts of the country. The latest adoptees of ELDs in the reefer industry are similar to Dry Van learning how to regain some of the productivity that they initially lost, but unlike the Dry Van segment of trucking have fewer choices in managing the use of the trailer.  Dry Vans are easy to ‘drop and hook.’ Whereas, Reefer tends to need at least some basic level of driver involvement, and Reefer fleets tend to carry much lower trailer to tractor ratios (averaging 1.5 to 1) than do Dry Van fleets (averaging 2.5 to 1). That said, the current level of DAT Reefer Weekly Barometer is predicting stronger contract pricing in coming months.

Exhibit 5

chart 5.png

 As we have pointed out for Dry Van, there is a clear pattern in which the DAT Barometer leads the spot price, which leads the contract price. We assert that our proprietary method of weighing the balance between demand and capacity using DAT’s unrivaled database predicts both the direction and magnitude of changes in spot pricing. We also assert that the direction, magnitude, and duration of changes in spot pricing, predict the direction and magnitude of changes in contract pricing. The following charts display this pattern for the Reefer mode.  

Exhibit 6

chart 6.png

Similar to dry van, the barometer predicts the direction and magnitude of changes in the spot price for reefer.

Exhibit 7

chary 7.png

The % change in spot vs. the Barometer shows the predictive value even more clearly.

 Exhibit 8

chart 8.png

As most industry participants know, spot leads contract on the way up and down

 

The DAT Flatbed Barometer

Weekly - came in at 87.6, pulling back from the zenith record high of 115.9 established the first week of June. The DAT Flatbed Barometer has now been above equilibrium (50) for sixty-eight consecutive weeks. The metric originally broke through 50 in early March of 2017 as the rise in the price of crude back above $50 a barrel drove an increase in heavy industrial activity that began in October of 2016 and continued to improve as WTI oil stayed above $45 a barrel (above $68 as we write this). Hurricanes Harvey and Irma started a strong uptick in building material shipments in 2017, but that strength has been buoyed by an oil price that makes fracking profitable in all parts of the U.S. and the high level of flatbed activity that fracking drives. We see the current level of flatbed activity as evidence that the U.S. industrial economy has shifted into high gear.

Exhibit 9

chart 9.png

As we have pointed out for Dry Van and Reefer, there is also a clear pattern for Flatbed in which the DAT Barometer leads the spot price, which leads the contract price. We assert that our proprietary method of weighing the balance between demand and capacity using DAT’s unrivaled database predicts both the direction and magnitude of changes in spot pricing.  We also assert that the direction, magnitude, and duration of changes in spot pricing, predict the direction and magnitude of changes in contract pricing. The following charts display this pattern for the Flatbed mode. 

Exhibit 10

chart 10.png

Again, the barometer leads the nominal spot price.

Exhibit 11

chart 11.png

Again, the pattern becomes even more clear when plotted against the % delta.

Exhibit 12

chart 12.png

Unlike Dry Van, spot prices are still well above contract in Flatbed.