Oversize load truck on highway Photo: Aaron Marsh/ Fleet Owner

Spot market in the ELD era: A look at Q1 and beyond

Since the electronic logging device (ELD) mandate initially went into effect in December, and has been fully enforced since the start of April, the spot market has continued to tighten, and pricing has responded dramatically. Furthermore, the demand for trucks remains at record levels, contract rates are up in the double-digit range – something the industry hasn’t seen since 2005 – and spot rates are up close to 30%.

If you ask Noël Perry, principal at Transport Futures and chief economist at Truckstop.com, he’ll tell you that the marketplace is “spectacular” right now, particularly for carriers. But the question is: How long will that last?

“We will go from the most spectacular year – or maybe two years – to conditions that feel much more like 2015-2016,” Perry told Fleet Owner. “The only thing that will sustain the conditions we have now is rapid freight growth or a monumental foul up in the regulatory enforcement of ELDs. There’s no indication that will happen.”

“The other thing we have to keep in mind is the industry right now is euphoric,” he added. “This is the best year people had in 20 years. And people don’t look ahead, they look behind.”

To Perry’s point, in 2015 and 2016, freight was growing at a 1% to 2% clip, and the industry ratcheted its hiring to match that. In 2017, freight grew by 4%, and the industry was slow to respond, therefore it’s still catching up, Perry pointed out.

Perry explained that though it’s possible this momentum could carry through most of 2019, the driving forces that have been impacting capacity, such as new regulations, will be substantially less next year. And if anything, regulations might be more likely to soften under President Trump.

“The second thing is it’s highly unlikely we will have additional freight growth beyond what we had last year,” Perry said. “It’s likely we’ll have less freight growth this year. It won’t be a bad year, but it won’t be the great year it was last year. What causes these capacity issues is not growth itself, but the acceleration of growth.”

“I expect that sometime in the fall, spot rates will begin to respond to a softer market,” he added. “And probably by the end of the spring rush next year, contract rates will show the same thing.”

In 2019, when those negative trends continue, Perry said we will be comparing rates to the strongest year ever, which is the current year. He projects spot rates will be below this year and contract rates will be flatter.

An era of ‘self-enforcement’ and productivity loss

Now that the industry is under full ELD enforcement, there have been reports of delayed shipments due to of capacity problems, resulting in detention-time hiccups.

As Perry noted, it’s a “spectacular” time for carriers, but not so much for shippers. “So far it’s primarily been a workload effect for shippers, so the transaction cost goes up,” he explained. “And there have been some reports of sporadic late shipments. Most commodities it’s just an inconvenience, but for some, like broccoli [or produce], that’s a big deal. There’s not panic amongst the shippers, it’s just annoyance.”

When it comes to actually enforcing the ELD mandate, Perry pointed out that we are now in an era of self-enforcement, meaning it is on the fleet and driver to make sure he or she operates under hours-of-service regulations.

Before the April 1 full enforcement date, there was a lot of industry-wide speculation and fear as to whether states would overreact and take a lot of drivers out of service and cause a panic in the market. But that hasn’t happened, and according to Perry, there haven’t been changes in market dynamics since April 1.

“There has been no indication of any panic amongst the industry with the beginning of formal enforcement,” Perry noted. “The data suggests that somewhere above 90% trucks have ELDs now, so there are very few people being penalized now for not having one.”

However, under full enforcement of the ELD mandate, carriers are expected to fully comply with the HOS rules, therefore productivity has fallen and rates have gone up to offset that productivity loss, Perry mentioned.

And that productivity hit has been made worse by the fact that 2017 was a very high freight year, so the industry had to hire somewhere in the neighborhood of 130,000 extra drivers a quarter, and they weren’t able to ramp up their hiring sufficiently, Perry added.

“The marketplace is tight not because there is some fundamental shortage of drivers,” he explained. “It’s very difficult to find drivers, but it’s been difficult to find drivers for 30 years. Yet most years, the industry does, and after previous crises like this, the industry caught up.”

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