Conflicting Data Clouds Reality Of The Freight Markets

As we pointed out last week, December was a month of growing uncertainty and severe declines in the U.S. financial markets. Since then, equity valuations have attempted to recover, as have many commodity prices. There is an abundance of theories but nothing close to a consensus view. The ongoing government shutdown, Trump's ‘Build the Wall' ultimatum, continued China trade talks and tariff dispute, and an unresolved Brexit are all adding to the uncertainty. Both the most bullish and the most bearish of prognosticators seem to be fading in whatever level of conviction they may have once held, and the only thing that seems to be growing is the level of ambiguity in everyone's outlook. 

Freight Markets Aren't Clearing up the Confusion

We often dismiss much of the general panic mongering or uncertainty generated by volatility in the financial projects, and the media's tendency to sell fear. Instead, we trust the uninfluenced by human emotion hard data of physical goods flow to guide us through the economic cycle. Historically, it has served us well. Today, looking at the freight trends overall, there is a general pattern of growth in North America but at rates of growth lower than a year ago. Freight flows in Europe and Asia, especially air freight in the most recent two months, are a little more concerning, but not yet at the "sound the alarm" level of contraction. So, we run home to the mode that we know has predicted the U.S. economy with the highest level of reliability and the longest predictive period of insight into the rate and direction - trucking. Unfortunately, there are currently a couple of trends in trucking, that at least at first glance, are diametrically opposed. Fortunately, we believe that there is an explanation for the apparent disconnect. 

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Based on the number of truckloads being offered/tendered into the market overall, 2019 is off to a strong start. SONAR's OTVI.USA (Outbound Tender Volume Index) has jumped straight up after the normal holiday week (Dec. 25 – Jan. 1) softness, and it has already gotten back to levels on par with the average established over the last year. When we stop and think about this, we find it pretty impressive given last year's performance. As we pointed out in this column last week, the OTVI overall is strong and the OTVI in certain markets, such as Seattle, is already at the peak of levels of 2018.

FreightWaves' SONAR Outbound Tender Volume Index (OTVI)

By itself, the overall OTVI is impressive. It looks like a clear bullish indication on the strength of demand for trucking in 2019. However, if you look at the OTRI.USA (Outbound Tender Reject Index), it trended down throughout the second half of 2018 and then plummeted over the first two weeks of 2019. The OTRI trendline is diametrically opposed to the OTVI trendline.   

FreightWaves' SONAR Outbound Tender Reject Index (OTRI).

Why would there be an extremely strong volume of loads being tendered, and almost no loads being rejected? Put another way, why would carriers be accepting almost every load that they were offered? 

We think there are several fairly straightforward factors at work:

  • Contract rates have dramatically improved since last year, and spot rates have fallen back below contract rates to a more normalized gap. Hence, the rate being paid for the shipments being offered is high enough to make it worthwhile for the trucking company providing the truck and driver. 

  • Since rates of driver pay have improved, trucks have been added to fleets, utilization that was initially lost to the adoption of ELDs has been recovered, and the average age of trucks has fallen; there is more trucking capacity available to move those loads within most fleets. 

  • Because of the decline in spot rates, loads accepted at the contract rate by a carrier can also be brokered by its in-house brokerage at a rate that is profitable.

We also believe that there is another very real, but less obvious factor. The breadth and depth of information that is available in the trucking industry has continued to grow steadily over the years. But, the data on the trucks and the shippers offering loads dramatically expanded last year and was both extended overall in the level of detail and increased demonstratively in small fleets (where there was no data at all) with the adoption of ELDs. More data on trucks was needed to optimize their utilization and much more data was needed about shippers in order to plan around the widely varied speeds at which they load and unload trailers. With broader and deeper data about the shippers offering loads, and the consignees unloading the loads; and much broader, more inclusive data about the trucks available to move those loads (from their real-time exact location, to the number of hours of service each driver has available), the marketplace has done what it is best at; it has taken the increased availability and amount of data, applied generous amounts of technology, and optimized the use of the resources.  It is what free marketplaces do, and what they do best.       

Donald Broughton – chief market strategist for FreightWaves

The smartest minds on Wall Street use charting analytics to quickly identify and then track trends in multiple data sets.  Why?  Because it works.  Even the most intelligent investor or skilled trader identifies patterns in numbers when they are charted far faster than when those numbers are simply displayed in columns and rows.  Graphically depicting data becomes more important when you are trying to compare two or more data sets and understand the relationship between them over time.  When viewing a chart of a couple of data sets that are related, you begin to understand the reason of the marketplace.  If you can add a series of technical indicators to the graph, you begin to understand the rhyme and the reason of the marketplace. 

SONAR allows you to quickly view graphical series of data, many of which weren't previously available to professionals trading the marketplace.  More importantly, it allows you to view those data series compared to other data series (some proprietary, others not) and then apply the type of sophisticated technical indicators to the data series that are normally reserved for Wall Street.  Patterns in the data don't just sit there quietly as numbers; they literally jump off the screen at you.  What are a few of those ‘jumping off the screen' at us right now?

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