The freight recession is over, writes DAT freight market rate expert Mark Montague in the first line of his latest column.
That 18-month malaise was triggered by the worldwide collapse of oil prices at the end of 2014, he writes, with accompanying freight drying up. To add insult to injury, line haul rates fell, too, in a cycle of year-over-year declines that lasted through the middle of 2016.
Freight volume and rates finally began to revive in May 2016, and year-over-year volume comparisons turned positive in August. Instead of tapering off after October, as retail freight did in years past, a boom market emerged for truckload transportation in November and December, with E-commerce was a major contributor.
In addition to the surge in e-commerce, the U.S. economy has the potential to strengthen as a result of anticipated higher levels of infrastructure spending, more corporate investment, with lower tax rates and potential political and economic measures that could relax regulation and stimulate growth.
Further, an ongoing slowdown in fleet additions by the largest carriers may lead to tighter truck capacity. By the end of 2017, electronic logging devices (ELDs) will be mandatory, and shippers are likely to require them even earlier in the year. By mid-year, carriers that still lack ELDs will find it increasingly difficult to maintain ongoing relationships with shippers, and with the large fleets and freight brokers that serve them.
Oil prices are still a wild card. Can the U.S. economy grow domestic energy production without causing damage to the worldwide economy? Will a strong dollar and the prospect of renewed protectionism strangle trade? How will future tax cuts and/or infrastructure spending affect the Federal budget and its deficits? The answers to these questions remain largely unknown.
All in all, the likelihood of increased demand and reduced capacity should result in rate increases, in the low to middle single digits. Rates may go even higher if the ELD mandate removes significant truckload capacity by the third quarter of 2017. At that point, spot market freight pricing could become very interesting, as it is precisely the smallest fleets who will be the last ones to jump on the ELD bandwagon, and those small operators comprise the bulk of spot market capacity.
Full blog here.