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DAT Freight Barometers: Contract rates will rise more slowly in 2019
- Nov 15, 2018
- Donald Broughton
Capacity is becoming more available, as small fleets have mostly adjusted to electronic logging device (ELD) and strict enforcement of the Hours of Service rules. Driver pay has risen steadily in the past year, so large fleets are able to attract drivers and keep more trucks on the road, effectively increasing capacity. Driver turnover remains high, so retention continues to be a pressing issue, especially for large fleets.
At the same time, new trucks are everywhere, which has caused the average age of trucks in service to decline. A new truck doesn't need repairs or maintenance as often as even a 5-year old truck, so the new trucks may have as much as 4% greater availability, which translates to additional capacity.
Total economic demand, especially in the industrial economy, is still growing, but not at the same frenetic pace we saw in the first half of 2018.
The DAT Freight Barometers, and this proprietary method of weighing the balance between demand and capacity, predict both the direction and magnitude of changes in spot pricing. Further, the spot price trend is predictive of the contract price. We find the gap between the spot price and the contract price useful in assessing and predicting the margins reported by most of the large publicly held truck brokers, as well as the logistics divisions of asset-based carriers. We should note that the spot price was higher than the contract price earlier this year, but spot is now back below contract. This is a function of the both the increase in contract prices and a reduction in the spot price back to what we would consider a more "normalized" gap.
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