Anticipating the launch of Rate Forecasting, the new week-by-week, lane-by-lane forecast from Truckstop.com and FTR, we sat down with Truckstop.com and FTR chief economist Noël Perry to talk about rates. This article marks the first in a series of articles about the topic.
Nick: So Noël, why are 2004 and 2014 important when we look at the coming year?
Noël: In both cases we had the juxtaposition of a strong freight economy and the imposition of new regulations that lowered productivity. In ‘04 it was a very strong economy and the original hours of service changes. In ‘14 it was a strong economy and the hours of service.
The other thing that happened—slightly different timing in both cases—was a weather event that added a seasonal temporary hit that tended to magnify it. In ‘05, before the market was completely recovered from ‘04, we had Katrina, and in ‘14, right in the middle of the crisis, we had that terrible snowy winter. Everything east of the Rockies had a very strong snow effect that had a cumulative effect, because supply chains weren’t recovered from the previous storm by the time the next storm hit. And so it wasn’t until the end of the spring surge in July that the market returned to normal.
Nick: Wow. That does sound surprisingly like 2017, right down to the regulations being specific to driver hours and logs.
Noël: So if you compare that to now we have 2017 as the strongest freight year of this recovery—surprisingly so, but a fact. We have the ELD change, which is going to lower productivity somewhere on average between 2 or 3 percent. But for the people that use Truckstop.com who are particularly vulnerable, it could be 5 or 6 percent on average—and in some cases a lot more—because if people have been seriously falsifying logs in the past (and there’s plenty of evidence that that occurs), well, they’re not going to be able to do so anymore—at least not without taking a big chance of being caught. And then we’re dealing with this big weather event. By any measure, it appears to be equally as disruptive economically as Katrina. A lot of people are saying more so. We have this perfect storm, no pun intended, of events that are pushing rates up.
The other thing that we haven’t talked about is that truckers are shy pricers. They tend to get aggressive in their pricing when they have emotional cover, and Hurricane Harvey may well provide that if they can say, “Well, we’ve had trouble because of the congestion in Texas, I’ll need some more.” For example, traditionally when fuel prices go up, truckers have actually taken more in higher rates than the fuel effect, because they get bold and they ask for more, and they get it. Hurricane Harvey is almost certainly going to raise diesel fuel prices some, leading to even higher rates both before fuel—cause they ask more—and after, compensating for the diesel price.
Nick: So Rate Forecasting will balance the temporary rate lift, like from hurricanes, against the more fundamental adjustment to productivity and rates like with ELD.
Noël: Right. The other thing we can do with our data here is to look at in detail right away the effects of a storm. Working with (Truckstop.com founder) Scott Moscrip, I’ve already analyzed what’s happened so far in Texas. And there are some substantial effects and even some surprises.
The outbound rates in Texas are low right now because there’s no freight moving. But try to get a truck into Texas, and you’re paying 25 percent more—or 20 percent more in some cases. So we can study it, and one of the things we’re going to do—and it’ll show up in these forecasts—is we’re going to track market conditions as we approach the ELD mandate. So we’re going to look at it in December, and we’re going to look at it again in April when they start taking people out of service if they don’t have ELDs. So we can look at it in almost real time to say, Hey, there’s been an effect… or there hasn’t, depending on what’s happened. And, of course, our forecasts in Rate Forecasting will reflect that very up-to-date data.
Next week we will discuss what exactly we saw play out in ‘14 and ‘04, and if there are new considerations for 2018’s rate outlook.
Time your moves right as ELD approaches with Rate Forecasting. Our groundbreaking, lane-by-lane rate forecast built into Rate Analysis (and available via Integrations) projects spot market rates for each of the upcoming 52 weeks from leaders Truckstop.com and FTR.