November 2018: Pricing Update

 In Spot Market
Steady fall has paused

Capacity: the root of pricing

The where and what of the spot market.

Author’s note. Here I start the first part of a two-part blog of the latest truckload market data. It addresses the root fundamental of truckload pricing: capacity. The next blog will present the pricing implications of this data and the latest pricing returns from the field.


The steady fall has paused.
We now have spot data through the end of October, eight full months into the 2018 capacity event – and contract data through September, seven full months. This is the where of the spot market. I’ll address the what below. The first graph shows’s capacity metric, MDI.High numbers indicate tightness. We see two things here. First, the values for each of the truck types have been declining since about Week 22 and are also well below the peak values at the beginning of the year. The market is not nearly as tight as it was. Second, in contrast, the most recent weeks have seen a flattening of the trend, only the second such flattening in this seasonalized data for 2018.

Strong levels persist but are flirting with normalcy.
The next chart gives us a relative look at market strength. It measures percent above the average from this recovery, a relevant comparison point. We see the same declining picture as above. The key number here is the 50% level, roughly the point above which growth cannot be explained by simple random variation. Using that standard, we see that the flatbed market is back in such sub-50% “normal” territory. Using the same logic, one can also use the 200% level as the threshold for crisis conditions. The market has spent much of the year above that level, but only the Reefer Market is pushing against that standard now. One concludes that the market is tight, but no longer critically so. Again, the decline in tightness is currently absent, but the level is no longer at crisis levels. It is wise to keep this in mind because the rhetoric within the industry is still quite shrill.

Things were worse last year!
The last of the three views is the year-over-year (YOY) story. It shows the familiar declining, then stabilizing trend, but has a very different emotional punch. That is because all but the Reefer Market are in negative territory. The markets are clearly less tight than a year ago. We will see this same story in the Spot Market pricing numbers below. This data reminds us of the importance of understanding the state of the comparison data (comps) when looking at YOY charts. A year ago, we were coming off the capacity tightness stemming from the two hurricanes. The capacity numbers spiked in September and early October before receding in November and then jumping to record highs with the Electronic Logging Device (ELD) mandate late in December. Beware of YOY numbers, given the wild gyrations of the market between September of 2017 and March of 2018. Also, next year the YOY numbers will pick up after June when the comps are the declining numbers of July-September of 2018.

Very tight capacity is coming back to earth – at various rates.
There are three clear messages from this capacity data.

  • First, it is easy to understand the dramatic events of the last year. The spot market, always the lightning rod for the truckload, got very tight early in the year and sustained much of that tightness through mid-year. As a result, prices rose rapidly, and shippers had to scramble for capacity.
  • Second, results have varied by truck type. The flatbed market has led the parade in absolute terms, but has been less far above its “normal” levels. The reefer market has been the opposite. Such complexity reminds one of the value of doing your statistical homework.
  • Third, consistent with logic, as the metrics decline toward more accustomed levels the rate of decline falls.

Will the leveling be sustained?
What is not clear is how much longer the still significantly-elevated levels will persist. My forecast is for a resumption of decline once we are past the Thanksgiving rush in a retail sector thoroughly traumatized by the online marketing explosion. Note that these capacity levels have clearly been positively affected by the strong economics of 2018. Should the economy slow in 2019, as many economists fear, these metrics could retreat to 2015 levels easily.


The mother of capacity crises.
The final chart in this discussion on capacity presents Transport Futures’ estimation of capacity utilization for the entire market. It gives us a good view of pressures on contract relationships, not represented by the spot market data from This data provides a useful historical perspective with which to judge the most recent developments. It is most easily understood by looking at the 100%, the point at which the market begins feeling major stress.
That is a surprisingly common occurrence as the market struggles to adjust to rapid swings in demand, especially after downturns as in 2010 and 2002. Note, however, that most approaches to 100% are short-lived. It is when the market tarries in that vicinity that things get tough; see 2003-2004, 2013-2014 and 2017-2018. It is notable that the visit to the 100% territory has been most extreme in the latest event, a fact entirely consistent with other sources of data.

But something is happening!
However, that visit is apparently over, as the market has receded to high-normal levels and is expected to fall farther in 2019, especially in the second half. So, we have a second capacity metric that shows the record tightness of the first half of 2018 and a decline since. In the next instalement of this blog, we will see the major implications of these capacity dynamics on pricing.

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