Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity is tighter than last year, similar to 2015, and very close to the long-term trend line for early May. It also indicates that refrigerated capacity is more readily available now than it was in January, which is not an uncommon pattern.
For most of 2016, refrigerated capacity was more readily available than in 2015, but in Q4 the lines crossed indicating a tighter capacity environment than in the prior year. Capacity continued to tighten through the end of January but has eased since then and the late Q1, early Q2 ramp-up is not as pronounced as normal. For the last 18 months, the index has been very stable at a level reflecting excess refrigerated capacity.
Refrigerated capacity began 2015 the same way it ended 2014, significantly tighter than normal. Throughout Q2 of 2015, the market shifted with the result being that capacity was not nearly as constrained as normal. That was even more so the case in Q3 and Q4, as the index dropped to a level lower than in any recent year, including 2009.
We do not believe that refrigerated rates will increase much in Q2 or Q3, but later in the year we could see some increases as smaller refrigerated carriers adopt ELDs and see equipment utilization drop by 4-5%. Demand for refrigerated transportation is less correlated to economic fluctuations than dry van or flatbed freight, so the future robustness of GDP growth will not determine demand growth in this market. The index measures incremental demand for refrigerated truckload services compared to incremental supply. The higher the index the tighter is capacity relative to demand when compared to a prior period.
Graph reproduced with permission from Morgan Stanley. For more information contact: Alex Vecchio at Alexander.Vecchio@morganstanley.com