A Warning Flag from the Data by Noël Perry

Noël Perry, Truckstop.com’s Chief Economist, is the lead economist and thought leader on freight and transportation topics and the owner of Transport Futures. Perry monitors the trucking market and provides detailed analyses using Truckstop.com data. Below you will find his most recent analysis of the capacity data and future of the trucking market.

The Perry Rule of Three:

People who have heard me speak are familiar with the ‘Perry Rule of Three.’  The rule is a practical expression of the concept of statistical significance we learned in statistics classes so many years ago: a phenomenon must be sustained over a good number of occurrences in order 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 a three-out-of-four-championships-run as we witnessed last week from the Golden State Warriors in the NBA finals?  Statisticians tell us that it is the latter—a sustained excellence—not a single, one-score victory dependent on several disputed referee 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 latest week of Truckstop.com’s MDI data (capacity measure).  The accompanying chart shows the MDI data through week 23 of 2018 (the week ending with Friday, June 8th).  The latest entry is startling in its dramatic uptick.  The 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.)

*Seasonally 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.

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 Perry’s 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.   Three, it does give us some indication of what we need to do.

Perry’s rules for one, two and three:

A single 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 do 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 price, 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.

This simple sequence of data change and actions indicated is worth repeating:

  1. One data point in a different direction – start to watch closely – look for more of the same.
  2. Two data points in a different direction – start your planning to respond.
  3. 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 Truckstop.com develops and refines its services we realize that simply presenting data, even the extraordinary amount of data we present, 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.

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