Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity is tighter than last year, but more readily available than normal for April. 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. *2006-2016 average trend line excludes financial crisis years of 2008 and 2009. For more information contact: Alex Vecchio at Alexander.Vecchio@morganstanley.com

Morgan Stanley’s flatbed freight index indicates that flatbed capacity is getting tighter and is tighter than was the case in either of the last two years for mid-April. The index is just below the 11-year average for April so it would be hard to argue that capacity is tight. In 2016, flatbed capacity was more readily available than was the case in 2015 until the last 6 weeks of the year, when the lines crossed. Flatbed capacity has continued to tighten so far this year. 2016 was a year of unusual stability and remarkable excess capacity in the flatbed market. With the ELD mandate not coming until December (well after the peak time of year for flatbed demand), it seems likely that we will not see significant tightening of flatbed capacity in 2017, although Q2 and Q3 could feel tight compared with the last 2 years.

Flatbed capacity-demand balance favored the carriers over the shippers more so in 2014 than in the prior two years, but capacity never became as tight in 2014 as in 2010 and 2011. Low oil prices and a falloff in drilling activity meant that capacity never did tighten in 2015 or 2016. The index measures incremental demand for flatbed 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

As we near the end of Q1, van capacity is tighter than in Q1 2016 but is more readily available than normal for this time of year. The index has fallen from January, indicating greater excess van capacity than was the case earlier this year.

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, any acceleration in the freight economy could lead to tighter van capacity by the middle of  2017. In most years, capacity gets tighter as we enter March, but that is not the case in 2017. If there is a surge in freight volumes in Q2, capacity will tighten and we will see upward rate pressure, but it is not at all clear that we will see demand increase enough in Q2 to absorb the excess capacity in the market today. 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

Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity is slightly tighter than last year, but more readily available than normal for March. It also indicates that refrigerated capacity is more readily available now than it was in January.

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. 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. For the last 18 months, the index has been very stable at a level reflecting excess refrigerated capacity.

We do not believe that refrigerated rates will increase much in the first half of 2017, 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. *2006-2016 average trend line excludes financial crisis years of 2008 and 2009. For more information contact: Alex Vecchio at Alexander.Vecchio@morganstanley.com