|
By Donald Broughton, DAT Solutions
To say that 2018 has been a period of both extreme volatility and unprecedented imbalance between capacity and demand for trucking services sounds like hyperbole.
In fact, it's an understatement.
In July, the number of trucks posted to the DAT network of load boards was up 20% year over year. The number of loads, however, was up 45%.
The average van load-to-truck ratio was 7.7 from January through July, meaning there were 7.7 available loads for every truck posted on DAT load boards. The average reefer ratio was 10.9 and the flatbed ratio was 78.4.
This raises two basic questions: What created this environment of extreme volatility and unprecedented imbalance? And if the first half of 2018 was crazy, what will the second half look like?
To answer both questions, let's look at how we got here.
Capacity constraints and increased demand
With truckload capacity already constrained by a shortage of qualified drivers, the industrial economy began to recover as oil prices climbed back above $50 a barrel in the fall of 2016, and accelerated when oil stayed above $55 in the fall of 2017. Higher oil prices made drilling more profitable, which in turn added to demand for trucking services, just as energy-related jobs lured drivers out of their trucks and into the oil fields. Then the ELD rule took effect in December 2017, followed by hard enforcement in 2018, and throttled productivity as small fleets adjusted to the devices.
While capacity is not increasing, significant increases in driver pay and better integration of ELDs, especially in the dry van and reefer segments have spurred a recovery. Unfortunately for shippers, the recovery of capacity is small relative to a dramatic growth in demand.
|
Shift in spending and freight patterns
Consumer spending began to grow again in 2017. Aging baby boomers are enjoying reflation in the value of their investment accounts, while millennials have finally reached the age when they're forming households en masse.
Millennials favor e-commerce for a large percentage of their spending, and e-commerce uses capacity at a high rate compared to traditional brick-and-mortar supply chain structures. E-commerce drives a large number of "cube out before they weigh out" trailers in shorter lengths of haul, which ratchets up velocity. Both the industrial and consumer economies are driving demand, but e-commerce is also adding volatility to supply chains that are already tight.
Expect more capacity pressure in the fall
Capacity is unlikely to expand by anything more than low single digits (1% to 3%) but the industrial economy is growing steadily in and outside of oil and gas exploration, and e-commerce is poised to continue its 18% to 20% growth rate through the end of the year.
If you think freight market has been a wild ride so far, you may want to tighten your grip.
Donald Broughton is a transportation analyst and managing partner of Broughton Capital. He publishes DAT Freight Barometers, which are based on transportation demand and capacity data from DAT Solutions and track truckload freight activity relative to the overall economy.
|
