A Warning Flag From the Data
The Volatility of the Truck Market
The Perry Rule of Three: People who have heard me speak are familiar with the “Perry Rule of Three.” That rule is a practical expression of the concept of statistical significance they we learned in statistics classes so many years ago. A phenomenon must be sustained over a good number of occurrences to be believable. Did the Eagles winning a single Super Bowl last February mark them as a great, memorable team – or do we have to see three out of four championships run as we witnessed last week from the Golden State Warriors in the NBA finals? Statisticians tells us it is the latter, a sustained excellence, not a single one-score victory dependent on several disputed ref calls, that defines greatness. Still, people in Philly are justifiably hopeful that last year’s results are a signal of a new era on Broad Street. What do we make of Nick Foles’ and his teammates’ performance in February?
What do we make of the spot market’s performance last week? I bring this up because of what has happened in the Truckstop.com MDI data’s (capacity measure) latest week. The accompanying chart shows the MDI data through Week 23 of 2018 (week ending Friday, June 8th). The latest entry is startling in its dramatic uptick. This data is seasonally corrected. The not seasonally corrected data shows a new peak in this metric, slightly above the previous high in Week 18. (I haven’t shown the breakout between Van, Flat and Reefer, but all have a big uptick in Week 23.)
What to make of this reading? One can draw three conclusions: First, this data point reminds us of the volatility of the truck market. Such jumps (or dips) in trucking metrics are a normal occurrence even with the millions of data points that make up these entries. Our market has a lot of random movement. Second, and back to The Perry Rule of Three: the Week 23 jump followed four consecutive weeks of falling values, a statistically valid trend. A single move in the opposite direction does not a trend make. It takes three or more moves up to establish a believable change of direction. Third, it does give us some indication of what we need to do.
Perry’s Rules for One, Two and Three: One data point that moves in an obviously new direction – this one does – is a warning flag. It’s not time yet to act, but it is time to start watching. Maybe the Eagles are starting a dynasty. I’m going to watch their start next year with more than normal interest. Maybe the spot market is headed for another level of tightness in June. I’m going to watch all of my indicators with heightened interest, beginning with the Truckstop.com’s Trans4Cast data next Monday. Two consecutive data points moving up also does not prove a new trend, but they are close enough to a trend for us to do some serious planning – just in case. How would a broker or shipper maintain adequate capacity if this keeps going? How would a carrier allocate scarce capacity? What would happen to pricing, driver pay, shipper budgets? Three consecutive data points that look like this one would establish a sufficient trend to take action. Importantly, pricing was up a little this week but not a big jump like this. A couple more weeks of such capacity pressure and pricing will respond.
This simple sequence of data change and actions indicated bears repetition:
- One data point in a different direction – start watching closely – look for more of the same.
- Two data points in a different direction – start your planning to respond.
- Three data points in a different direction – take action, respond!
Data is only relevant to the extent it tells us to do something different: As Transport Futures develops and refines its services we realize that simply presenting data, even the extraordinary amount of data available now, is not enough. Accordingly, our offerings will increasingly include the “so what’s” of the data. When the data says to do something different we will tell you that and broadly what you need to do. This week the data tells you to start watching more closely. Two more weeks of such data would require you to ratchet up your already strong responses to the most spectacular market in recent memory. The best market players will be doing that so that they maintain their place as market makers rather than market responders.
 Seasonal corrected data recognizes that truckload data is always high in the spring. Statisticians factor out such “seasonal” strength to see what the underlying market is doing. The seasonal strength will go away in July, perhaps the underlying strength will not.