Van capacity is tight & partly hurricane related
As we near the end of Q3, van capacity is significantly tighter than in any recent year for late September. The index moved above the tightest recent capacity year (2014) in the last couple of weeks. Once the hurricane disruptions ease, we will probably see capacity ease up but a strong holiday push leading up to the December 18th ELD mandate could lead to very tight capacity later this year. While carriers will not be placed out of service for non-ELD compliance until April 1st, they will be receiving citations beginning in December and I expect that many small carriers will be implementing ELDs in Q4, so the utilization hit will be felt.
In December of last year, 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. This year, capacity became tighter than normal early in Q3 and has remained above the longer-term trend line for the entire third quarter.
Morgan Stanley believes that capacity will remain as tight as it is today through the end of the year. That could well be the case as the economy is picking up some steam, freight typically pick up in Q4, and the utilization hit of small carriers implementing ELDs will be felt in Q4. We have already seen spot rates increase in late Q2 and throughout Q3. If Morgan Stanley is right, there will be no relief in spot rates through Q4.
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