Moving through Q3, van capacity is significantly tighter than in 2016 and 2015, and is tighter than normal for this time of year. The index is almost identical to 2014, with the difference being that in 2014, we were relieved to see capacity tightness easing up from a very tough fist half of the year, and this year we are concerned that capacity could get much tighter if the economy expands and as ELDs are mandated.
Capacity started to tighten up a little through July of 2016, but then the index flattened out through November. In December, capacity tightened and the index reached its highest level of 2016. That was a very different pattern than 2015, when capacity was at it tightest in January and became more readily available throughout the year.
While the negative impact on capacity of ELDs will not be felt until late 2017, it is concerning that capacity is already this tight before the impact of ELDs is felt. If there is a surge in freight volumes later in Q3, capacity will tighten and we will see upward contract rate pressure. We have already seen spot rates increase in June and July, The index measures incremental demand for dry-van 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. *2006-2016 average trend line excludes financial crisis years of 2008 and 2009. For more information contact: Alex Vecchio at Alexander.Vecchio@morganstanley.com