Demand - Supply = Price.
It's pretty basic, really. An Econ 101 kind of formula. Then why has understanding the freight markets and projecting rates been such a challenge for shippers, logistics, and transport companies? That's a good question.
Back to Econ 101 for a moment. Supply refers to the number of goods that are available. Demand is how many people want those goods. The supply of a product goes up, the price of a product goes down, and vice versa. Like we said, pretty basic.
For years the freight industry has been able to see, measure, and understand demand. For freight markets, demand is the number of goods that need to be transported to an end-user.
If you order a product it gets delivered to your door, it happened through the use of some combination of truckload, less-than-truckload, rail, intermodal, or last mile.
The rise of e-commerce is adding new challenges for transportation demand, not necessarily changing the length of supply chains, but certainly adding time-definite delivery requirements and pressing retailers of all types to deliver faster, raising the importance of inventory management.
While freight cycles occur more much frequently than economic cycles, freight demand per capita is still fairly stable over the long run. The are dozens of metrics that measure demand, allowing shippers, brokers, and carriers to keep a finger on the pulse of demand for a long time.
That's a good thing, right?
If demand is unknown, supply may not be able to keep up.
But what about understanding market supply?
This is where freight markets most often have a lack of visibility. What is the supply, or capacity, and how that will impact freight rates?
Rates, or price, are a major concern to all classifications of businesses within the supply chain and logistics spectrum. Rates equal revenue or expenses, or both, depending on the side of the coin you're on.
And, until now, there hasn't been a consistent method accurately (trajectory and magnitude) projecting rates and what will happen in the next 6 - 36 months. Sure you have Cass Transportation Index, and DAT spot and contract Rates. You can measure port activity, and intermodal activity, and more. Again, that's all demand and missing a key component.
This inability to "peek behind the curtain" has led to budgeting issues as well as volatility in the supply chain.
And what does every business across the supply chain need? To know what to expect in 12 months and eliminate volatility, particularly regarding rates.
The objective is to know which direction the market balance is headed. To understand both demand and supply and how they’ll interact to drive price.
So what has been missing from the equation to showcase the supply-side of on-highway trucking?
Class 8 Tractor build and sales data.
When you layer in Class 8 tractor data to the demand drivers of trucking, you can measure the capacity of freight hauling vehicles in the U.S. fleet. In other words, you can better know the direction and the magnitude of shifts in spot rates.
This understanding of the pattern of supply (capacity) and rates will create more transparency for your business, allowing you to better plan and prepare for the next 6-36 months.
Class 8 tractor data will allow you to see the shift in trucker capacity and its impact on volumes and rates. How do we know? We use Class 8 tractor build and sales data in our freight forecasting.
ACT's freight models saw the capacity crunch of 2017, accurately predicted the rollover in spot truckload rates mid-2018, and were 98% accurate for spot rates in 2019.
There is so much greater demand perspective for trucking, but the missing piece to better understanding the direction of rats is Class 8 tractor data.
Want to learn more about Class 8 tractor data? Check out some additional insights from this presentation from August on the backlog of Class 8 tractor builds and how we view this impact on the spot rates.