REPORT: “Strong Capacity Growth” Weakening Freight Rates
Little Rock, Arkansas – Freight volume is improving, but rates are continuing to trend in the wrong direction for carriers because of increased capacity in the market, according to a new report by ACT Research.
The latest release of ACT’s For-Hire Trucking Index showed an improvement in volume, although the measure remains in negative territory at 49.5 seasonally adjusted.
The bigger story this month, however, was the Pricing Index, which fell considerably to 45.4, from 49.4 seasonally adjusted in March.
ACT’s data indicates the supply-demand balance was loose for the sixth consecutive month as the reading dropped to 45.3 in April, from 46.7 in March.
Kenny Vieth, ACT Research’s President and Senior Analyst commented, “This was the third straight Pricing Index negative after 30 consecutive months of expansion, and after an extraordinary cycle with a record 64.8 average for full-year 2018, rates are under pressure from weak freight volumes and strong capacity growth.”
Vieth also noted, “Volume in April fell for the fifth time in the past six months, and the softness coincides with several other recent freight metrics we’ve been reporting in our Freight Forecast”
Vieth attributed at least part of the market dynamics to “the unusual tariff-related inventory pull-forward that occurred late last year.”
Additionally, Veith noted what is really hampering freight rates is higher capacity being added to the market in recent months.
“Although the Volume Index reading improved slightly, it was outweighed by the higher Capacity Index, giving us the loosest industry supply-demand balance in almost three years (April 2016).”
According to Veith, ACT’s predictive freight models expects much more of the same going forward and into 2020.
“Both elevated Class 8 tractor production and soft freight volumes will keep the supply-demand balance loose until freight improves, capacity tightens, or both,” he said.