Surging spot market may have flattened, but it still points to higher contract numbers ahead

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After setting one record high after another in the early weeks of 2018, the weekly DAT Dry Van and Reefer Barometers have finally pulled back slightly, before stabilizing in a strong growth range.  Meanwhile the weekly DAT Flatbed Barometer has continued to set one new record high after another.  All three modes of truckload trucking are reflecting an environment in which demand exceeds capacity by a wide margin.  

The monthly barometers are reflecting the same imbalance between capacity and demand as the weekly barometers, and offer a less volatile and longer term view.

As we begin to assess what these barometers are telling us, we should remind readers of a fundamental rule of all marketplaces: volume leads. We have repeatedly observed in a host of different markets that volume goes up before pricing starts to strengthen, and volume goes down before pricing starts to weaken. Even in markets as basic as the weather, the number of hours of sunshine (sunrise to sunset) starts to decline long before the temperature starts to fall, and the number of hours of sunshine starts to increase long before the temperature starts to rise. 

What does all this mean?  

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, e.g., 56 is better than 54, and 42 is worse than 48.

The DAT Dry Van Barometer

Weekly: After breaking equilibrium (50) forty-one weeks ago, the weekly barometer established a succession of ever-higher levels.  Although the current reading of 58.9 is not 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 is notable on a stand-alone basis but becomes even more remarkable when seasonality is considered (February is the weakest freight month and January is the second weakest freight month).  This level, coupled with the first fall surge in freight in over a decade and the ELD rule that went into effect December 18, 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. 

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. 

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.

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