To quote Sir John Templeton, “The four most dangerous words in investing are: this time it’s different.” The same can be said about the US Truckload Freight Market.
To say that 2020 has been a year defined by volatility, uncertainty, and hardship is of course a colossal understatement. Now as we find ourselves in the last month of the last quarter of this roller coaster of a year, we have a basket of both positive and negative catalysts to reconcile to have any sense of what comes next. In the plus column, we have increasingly positive developments on the COVID-19 vaccine and treatment fronts and are seeing the early stages of mass distribution of those vaccines across the globe under what is the greatest mobilization of logistics resources since World War II. After cratering in Q2 as non-essential industrial activity and consumption was halted abruptly as part of the US pandemic mitigation effort, a V-shaped recovery in both appears to be taking shape as the recovery continues – albeit unevenly distributed across both industry sectors and population demographics. The consumption of goods has spiked in many categories to at least partially offset the contraction in spending on non-essential services like travel, hospitality, and entertainment – offering an unexpected tailwind to many segments of the logistics industry as all of those physical goods must be manufactured, warehoused, and distributed. And so far at least, most economic indicators point to an accelerated broad economic recovery in 2021based on vaccine development and the re-opening of the service sector, additional fiscal stimulus from the incoming administration, and continued favorable monetary policy.
Unfortunately, on the negative side of the ledger, the country will have to grind through a second wave of COVID-19 infections, hospitalizations, and deaths – and the mitigation programs become necessary to combat them – before we make it to the other side to what promises to be a less shitty 2021 for most folks.
One of the perhaps biggest surprises over the last year for many has been how well the US Truckload Freight Cycle has held up despite an unprecedented global pandemic and the just as unprecedented sharp economic recession that followed in its wake. After suffering what was a surprisingly brief and benign pause in Q2, Spot Market rates (DAT) continued their march higher through the end of the year – just as they were predicted to do coming into this year in our pre-pandemic forecast. With only a couple of weeks to go in the quarter, the spot index is sitting at +41.5% vs. a revised Q3 forecast of +40.0%. It is likely that this will represent the peak of this leg of the cycle and mark our inflationary inflection point – though it is entirely possible that an acceleration in economic activity from recovery-related stimuli over the coming months pushes the peak to next quarter. The Q4 Contract Market rate index (Cass Linehaul), based on October only, sits at -1.4% vs. a forecast of 0.0% – or flat. Though we expect that once November and December values are reported, Q4 will land firmly inflationary (i.e. > 0.0%).
As December concludes with what will likely be the mother of all peak season volume surges that pushes spot rates even higher, it will be tempting to expect both truckload demand and rates to remain elevated through 2021 and into 2022 driven by the broader economic recovery. Unfortunately, history points to a more likely path forward, one that is decidedly different. Remember that bad decisions cluster at the cycle peaks, and this peak isn’t likely to be any different – despite everything else in the world that is right now.