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?
Where we came from - The history books will say many things about 2018, but whatever else is recorded, it will go down as one of the strongest years for spot and contract pricing increases in the history of trucking in the U.S. After spot market rate increases of over 30 percent in dry van and reefer, and spot market rate increases of over 25 percent in flatbed; which were followed by contract rate increases of over 15 percent in all three modes – the logical question becomes, "Can rates in 2019 actually increase over the rates of 2018?" For many in trucking, who over the last several decades grew accustomed to thinking of pricing increases of more than 5 percent as "very high," achieving price increases in 2019 on top of the levels achieved in 2018 seems difficult to imagine.
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Obviously, the eventual outcome will depend on whether economic demand continues to grow (and at what rate it grows), and whether capacity continues to expand (and at what rate it expands). The simple marketplace certainty is:
-the degree to which demand growth exceeds capacity expansion raises the amount by which rates can rise;
-while the degree to which capacity expands faster than demand grows (or demand contracts faster than capacity shrinks) lowers the amount by which rates can rise, and if severe enough pushes rates down.
Where we are now - During 2018, capacity was added to the trucking industry for reasons we've outlined in previous reports. Demand has continued to grow, but is growing at a pace slower than it did in the first half of 2018. The DAT Trucking Freight Barometers are indicating a marketplace in which demand continues to exceed capacity in all three modes, perhaps not to the extreme extent it reached early in 2018, but overall there are still more loads than trucks.
Where we are going – FreightWaves SONAR subscribers have access to a tool (the DAT Trucking Freight Barometers) that has historically been highly predictive of both the direction and magnitude of spot rates in each mode, which in turn has predicted whether contract rates were going to go up or down, and by how much.
As any active participant of any magnitude in the trucking industry knows, DAT Solutions operates the largest spot marketplace for trucking freight in the U.S. with the greatest number of participants, including trucking companies, freight brokers, and shippers. The DAT marketplace is also the deepest, with the most loads and trucks offered across all trailer types.
What are these DAT Trucking Freight Barometers? DAT's large pool of data was first compiled and historically studied, and then used by data scientists to accurately determine the ongoing swings in the balance between capacity and demand. Each of these indices captures a number of marketplace factors, including number of loads posted and number of trucks posted in that time frame, as well as the number of loads searched for and number of trucks searched for. The point of equilibrium (demand and capacity are in balance) was then set to a value of 50. 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.
Historically this method of weighing the balance between demand and capacity has predicted both the direction and magnitude of changes in spot pricing. In turn the direction, magnitude, and duration of changes in spot pricing, have predicted the direction and magnitude of changes in contract pricing.
While not as high as it was earlier in the year, the current DAT Dry Van Trucking Freight Barometer (56.2 in the week ending Dec. 15) has been highly correlated with spot market price increasing by more than 10 percent in the coming year. The ultra-high spikes in spot market pricing in early 2018 may put this prediction to the test, but the point remains, "if there are more loads than trucks, then rates can still rise." If spot rates rise by over 10 percent in 2019, over the ultra-high spikes achieved in 2108, then the possibility of contract rates going up on top of the rate increases achieved in 2018 seems more imaginable. Only time will tell, but 2019 promises to be a very interesting year in the trucking marketplace.
Stay tuned…
Donald Broughton – chief market strategist for FreightWaves
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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