March Market Update
Truckload market demand remains high at the end of Q1
Stimulus payments, vaccine rollout improvements, record low inventory levels, record high retail sales, and continued manufacturing growth are all working together to sustain the strength we have seen in the truckload market over the past several months. Internet Truckstop’s Market Demand Index (a ratio of available loads to available trucks) has soared over the past month to a YoY increase of 270% and an increase of 434% over the 5-year average. Spot rates have been near record highs since September of last year and March is currently tracking to be another near record high according to DAT Solutions. And momentum isn’t expected to slow down anytime soon.
As reported by the U.S. Census Bureau, the overall inventories to sales ratio fell to a near record low of 1.26 in January after stabilizing around 1.32 for the past six months. The $600 stimulus payments that were passed in December and disbursed in January played a significant role in this decline as sales greatly outpaced inventory restocking. Inventories are not likely to have much time to recover as additional $1,400 stimulus payments are now being disbursed only two months later.
As these stimulus payments are sent out, daily Covid-19 infections are on the decline and the administration of vaccines continues to improve. Because of this, consumer confidence is likely to continue to improve — which could lead to more spending (with spending on goods still greatly outpacing spending on services). We may see some volatility in inventory levels as a result.
Manufacturing is also doing its part to provide continued strength to the market. The Institute for Supply Chain Management’s Manufacturing PMI® fell to a low point not seen since 2009 at the onset of the pandemic, but it rebounded to expansion territory in June and has stayed there since. February’s ISM PMI measure came in at 60.8(>50 indicates growth) and it’s expected to remain in expansion territory throughout the year. As new orders continue to increase, inventories remain low, and factories struggle to keep up with demand. As a result, expansion in the manufacturing sector is not expected to subside for several months.
While demand remains strong, capacity remains an issue, and Class 8 orders have spiked to historical levels. According to FTR, new orders have exceeded 40,000 for five consecutive months, including orders exceeding 50,000 for November and December 2020. However, we probably won’t see the downward pressure on rates from these orders for a while. Supply chain issues, such as the global shortage of semiconductor chips, are making it difficult to produce enough trucks to fill orders.
Even if those orders are filled, there is still the problem of finding enough drivers to fill the trucks. According to the American Transportation Research Institute (ATRI), the driver shortage is ranked the number one issue in the trucking industry by carriers and with the average age of drivers around 50, new drivers will be needed to fill the vacancies left by retirements in addition to the current shortage.
No matter what happens in the market, having a trusted logistics provider is one of the best ways to navigate the changes. As a logistics company with owned assets, ArcBest is uniquely positioned to offer solutions even when capacity tightens. Whether you’re looking for an ongoing supply chain partner, capacity for a particular lane or shipment, or you want to prepare for peak season demand, we can help. Learn more about our logistics services.