FreightWaves’ SONAR chart of the week (June 23, 2019 – June 30, 2019)
Chart of the Week: Revenue per driver per week – Reefer, Flatbed, Dry Van (SONAR: DRVREV.RCFOO, DRVREV.FCFOO, DRVREV.VCFOO )
When it comes to demand volatility in the truckload sector of transportation, the normal consensus progression from most to least volatile is flatbed, reefer, then dry van. The revenue per driver per week statistic reported each month by the Truckload Carrier Association (TCA) available to SONAR subscribers is showing the previous year’s unprecedented demand is having a more lasting impact to reefer carrier efficiency than the other two trailer types.
Revenue per driver per week is a good measure of efficiency, tying the operation to revenue generation. The higher the revenue per driver per week is the better utilized the drivers are, but it is also a measure of revenue efficiency over time. Currently, the temperature-controlled carriers (commonly called “reefer” carriers) are managing the freight market turbulence more efficiently than either dry van or flatbed carriers by retaining 11-12% higher revenue per driver per week through the first four months of 2019.
Freight market volatility has been considerable over the past five years, with national spot rates averaging between $1.20 and $2.09 per mile not including fuel on the dry van side, which accounts for roughly 70% – 80% of the overall for-hire truckload market. The peak of that cycle was in June of 2018 and has been slowly stabilizing since, this pattern is evident in the revenue per driver per week chart.
Reefer demand is traditionally even more seasonal than dry van, with much of the need for temperature-controlled equipment coming in the warmer months in May through July along with many of the produce harvests. Combine the all-at-once demand with heightened service demands due to the perishable nature of the freight and reefer rates have little cap on how high they can jump in a short period of time.
From June of 2017 to June of 2018, during the bulk of the freight market bull run, reefer carriers reported an increase of $403 in average revenue per driver per week, or 11%. Over the same time, the less volatile dry van carriers reported a 6.2% increase in average revenue per driver per week.
This April, dry van carriers averaged 2% lower versus 2018, while reefer carriers lost only 1.3% YoY. Both maintained most of their gains from the previous year, with reefer holding slightly stronger. This may not seem like a large feat, but considering reefer demand is significantly more volatile than dry van, one would expect to see larger gains and deeper losses during market swings for reefer carriers.
Looking at the flatbed carrier figures in the chart, this volatility is clearly reflected as the highs are higher and the lows are lower than either of the other two carrier types, peaking in June of last year and bottoming in February this year, bouncing below dry van for a month.
The reefer carriers have been able to hold on to much of their efficiency through either utilization or rate “stickiness” as the market has declined. Looking at the current Reefer Tender Rejection Index for the U.S. rejection rates have been increasing steadily throughout the month of June while van rejections have been relatively flat outside of Roadcheck week.
The increasing reefer rejection rates supports the premise that reefer demand continues to keep this type of carrier moving and with higher rates as there are more options available. Shippers are more than likely more loyal to this type of carrier as well due to the specialized nature and increased service demands.
The commodities moved on reefer trailers are also less impacted by slowing economic condition in terms of goods demand. Food products and agriculture tend to have less swings due to the fact people always need to eat. With growing demand for fresh produce and healthier lifestyles, the reefer carriers may be more insulated from future economic slumping than any other equipment type. The back half of 2019, when the produce movements decline, will be interesting to see how this pattern holds.