The Freight Rates Cycle
The prevailing level of freight rates is the single most determinant factor for a trucking company’s profitability. Trucking companies will enjoy bountiful times when rates are high and will go through tough droughts when they are low, for this reason it is important to know where they are, but more importantly where they are going in the near future, so lets take a look and see where we are in terms of the freight rates cycle.
So first, lets start with the basics, the level of freight rates is determined by supply and demand, in the case of trucking, supply is given by the number of trucks that are available at a certain point in time, and demand is given by the number of loads that need to be shipped at a certain point in time, the higher the number of loads and the lower the number of trucks available, the higher the rates will be. DAT.com has excellent resources for looking at these trends, for example the following graph shows the ratio of loads/truck for dry van loads, again, the higher this ratio, the higher rates will be.
As we can see, the load/truck ratio is at a very health level of about 5.5 loads per truck according to DAT.com, and as expected rates are also at a very healthy level of $2.38 per mile for dry van and $2.57 per mile for reefer as of the day of this writing, that’s all good, but the real question is: will they continue at these levels? Will they go up even more? Or will they go down from here?
Well, the reality is that it is very hard to say, but if history offers any guide, the next 2 years should be very positive for truckers, it seems that 2019 was the low year of the cycle, class 8 truck orders plummeted to about 15,000 per month on average for that year, compared to around 35,000 for 2018 and we saw a large number of bankruptcies in the trucking space in 2019. Based on the graph above, we might dare to say that April 2020 was the final bottom of the cycle (as Feb 2016 was previously) and that rates should start increasing from then on (as they have so far) until truck orders really heat up again. The good news is that so far that hasn’t happened, although truck orders have increased somewhat in the last couple of months, they have a long way to go to reach 2018 levels. So for now, let’s enjoy those rates and strengthen our finances. If there is anything we can do to help, let us know. Happy trucking!!!
