Isn’t great to finally have good data!
We are now a full three months (a quarter past) the Electronic Logging Device (ELD) mandate that went into effect on Dec. 18 last year. Thanks to the copious, real-time data from Truckstop.com we have a very clear statistical picture of the ELD effect on the market.
This first chart displays the results for the Truckstop.com Market Demand Index (MDI) in the clever way invented by Jonathan Starks of FTR Intelligence. The orange bars on the left compare the level of the current 2018 results with last year’s results (gray line) and the average results for this entire recovery (red line averaging 2010-2017). In addition, I have added blue bars with results for 2014, the most recent strong year (before 2017). It is immediately apparent how much higher the market has been since Week 51 of 2017. Something very serious is going on.
This next chart shows a better way to look at the numbers:
For an even clearer picture, I have recast the data as a percent difference from the recovery average. This methodology allows us to factor out the confusing matter of seasonality.
Shown this way, several things become immediately apparent. First, look at 2014. Yes, its results stayed in positive territory, well above recovery average for much of the year, but by very little compared to this crisis. This data tells us, for the first time, why contract rates did not move much in 2014. If the spot market, as shown here, was reasonably orderly so must have been the contract side, since it is always much more orderly than the contract market. Turns out that the great 2014 market tightness was largely limited to the effects of the unusually bad snow of that year in early spring.
Second, we can easily see the much greater magnitude of the 2017-2018 crisis. It has been twice or more tight than normal since the hurricanes last September.
Third, as we discovered in January, the index jumped even more in Week 51 of 2017 and has stayed very high. The statistics are clear and striking.
Finally, consider the sharp difference between the 2018 results in the two graphs. The latest data in the top graph is very high, just below the all-time record, set in Week 1 of this year. The bottom graph, corrected for seasonality, shows that the current number is high, and climbing slowly, but is well below the peak set back in January. The bottom picture is much more meaningful.
What the MDI is and what it ain’t
This statistical work allows us to begin searching for the meaning of these spectacular numbers. To recover that meaning it is, first, important to consider the definitions of the Truckstop.com data. The MDI uses postings data, the number of loads and trucks posted. It doesn’t tell us how many loads moved or how many trucks there were to move them. It only says how many loads and trucks are posted on the board. So it is most accurately a gauge on how anxious shippers and carriers are. When they are very anxious, they post a lot. When they are confident, they post less. The 2018 data indicates clearly that shippers are very anxious, thus posting many more loads. You guessed it; carriers are not anxious. Why post if my phone is already ringing off the hook? This explanation tells us that the Truckstop.com MDI is a good, reliable measure of relative tightness in the market, but it is not an absolute measure. Still, when a reliable measure tells you that things are way different than normal, it is time to take notice.
The rise of phantom enforcement
The great puzzle in these numbers is the timing of the big jump in the index. The Dec. 18 ELD mandate was largely a paper mandate and has been increasingly subject to special temporary exemptions for favored segments of the industry. Enforcement, at least governmental enforcement, has been postponed until April 1 of this year. That’s when you would expect a big jump, not back in December, or, for that matter in the late spring of 2017 when the MDI began its steady rise above the recovery average.
This inconsistency leads to this hypothesis. Apparently, simply installing an ELD changes carrier behavior, even in the absence of roadside enforcement. That word ‘roadside’ may be very important. Unless a trucker is not using an installed ELD (estimates are at 85-95% installed), he or she is generating a factual recovery of behavior. That puts them at risk of an eventual audit by a regulatory agency or fleet management. There is also the matter of tort exposure in the event of an accident.
Further, shippers and brokers, are increasingly making ELD use a prerequisite for getting loads. The result, it seems, is significant unenforced compliance. Got an ELD installed? Got to run legally. This hypothesis suggests interestingly that we may get less of an additional tightening after April 1 when enforcement is supposed to start since so many carriers are already running legally. It also downplays the effects of the very difficult data recovery and analysis challenges in roadside enforcement.
Finally, one wonders if eventual enforcement will somewhat soften tightness once the carriers figure out the practical margins for error. We all drive our cars nine miles over posted speeds limits because we have run through so many traps at those speeds without being stopped. If we were unsure of the practical limits, as the carriers are now about ELD-enforced hours of service, we would probably drive slower.
What about rates?
Applying the same statistical methodology to Truckstop.com’s rate numbers identifies a strong rate effect, just like our profs in Econ 101 assured us. Prices go up when markets are tight. The price statistics give the same dramatic picture as do the MDI statistics: a dramatic increase beginning late last Spring and climaxing at the end of the year, apparently in response to the ELD mandate. The increase is especially large with the 2018 numbers. The absolute numbers in the first graph show a recent move back towards the record peak at the turn of the year, while the seasonally corrected number reveal that increase to be primarily seasonal. The numbers remain very high but are only increasing slowly when properly adjusted.
2014 looks much more significant in rate terms: The big difference in the two metrics, MDI and Rates, is in the 2014 numbers. In the MDI, 2014 was again only modestly inflated. 2014 was a big deal in 2014 pricing, and the pressure stayed into 2015. It’s possible that the difference is a higher propensity to use load boards now than in 2014. I suspect it is more evidence that shippers are very sensitive to capacity problems. Modest increases in tightness produce bigger changes in rates.
It’s the relative change that matters: Note importantly, that the absolute pricing numbers in the first chart are subject to two major qualifications. While they contain fuel, they do not contain brokers’ margins, so they understate door-to-door prices by thirty cents or more, and they can be skewed by fuel price swings. Second, the number quoted is the result of two averaging operations. To start, these are the averages across all truck types, van, reefer, flat, specialized. Second, they are the average of hundreds of thousands of individual rate quotes for each weeks’ values. Such numbers should not be plugged in to compare with specific, individual moves. Individual moves are subject to all manner of market forces that may move a rate far from a market-wide average. As with the MDI, these numbers should be used as a measure of relative change in rates. They show that the market is 20-30% above its normal levels. Sure some lanes may be moving in a different direction, but most will be much higher than normal
So, your rates on your latest transactions may be higher or lower than the Truckstop.com averages; this data says little about that. But those same rates should be much above where they were a year ago. That is what these averages say convincingly. Someday we may get better comparative data. That will be nice. In the meantime, you would be foolish to ignore the macro information of this remarkable data. Remember that in 2014, the last time we had a tough capacity crisis, there is no spot market data save the anecdotal whispering of carriers and shippers. It was like flying blind in that big storm.
About Noël Perry: Joining Truckstop.com in June of 2017 as Chief Economist, Noël Perry is the rare economistic to specialize in transportation. Starting on a loading dock in 1968, he has followed his life’s interest in senior research positions at Cummins Engine, CSX and Schneider National. He has been in private practice since 2008, working with clients in four modes and the shipper community. He is frequently quoted in the national logistics media and heard on the speaking circuit.
Noël holds degrees from the University of Pennsylvania and the Harvard University and navigated KC-135’s during the Viet Nam war. He and his wife Ginny live in the historic iron mining village of Cornwall, PA. In his spare time Noël is a gardener, singer, golfer, WWII historian and is a member of the Society for American Baseball Research.