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 amount of goods that are available. Demand is how many people want those goods. 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 amount of goods that needs to be transported to an end user.
If you order a product it gets delivered to your door, it happened through use of some combination of truckload, less-than truckload, rail, air, intermodal and 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 Freight markets have had a finger on the pulse of demand for a long time. That's a good thing. If demand is unknown, supply may not be able to keep up.
But what about understanding supply? Where the Freight markets are most often surprised is the lack of visibility of the supply side 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. Until now, there hasn't been a consistent method of projecting rates and what will happen in the next 12 - 18 months. 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.
There is great news! Supply side visibility is now available and accessible to businesses. The understanding of the pattern of supply and rates will create more transparency as businesses of all shape and sizes can plan and prepare for the next 18 months, working to understand future freight market imbalances. Our models saw the capacity crunch of 2017, accurately predicted the rollover in spot truckload rates which started in the middle of 2018 (as published in our N.A. Commercial Vehicle Outlook report), and they can help you to better understand where freight rates are headed from here.
ACT Research is the leader in economic forecasting for the commercial vehicle industry as we analyze both the new and used classes 5, 6, 7, 8 truck markets. For over 30 years ACT Research has worked with the industry and built foundational population models, including vital data such as average age, which have become the industry standard. We produce over 18 different product reports on various divisions of the commercial vehicles industry, tailored to the needs of a variety of participants. Through these forecasts, we are able to measure and understand the demand for new trucks, as well as their used counterparts, which represent the supply side of the transportation industry on the flip side of the same coin.
This understanding has let us develop unprecedented insights into the freight markets and produce truly innovative rate prediction models. Through this Freight Forecast, we hope to help businesses gain insights and understanding of tactical and strategic shifts in market balance to improve the accuracy and efficacy of budgeting, planning and rate negotiations.