Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity is significantly tighter than last year and 2015, and very close to the long-term trend line for late July. Aside from the severe excess capacity markets of 2015 and 2016, capacity-demand balance is about normal for this time of year.
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 this year, but then eased off a little before gradually tightening throughout Q2 and into Q3.
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.
With tighter capacity this summer contract rates could begin to increase, as they already have in the spot market. Later in the year we could see more 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