What's Old is New Again

A few months ago, we highlighted the sideways price action seen in the DAT US National Freight Index. Over a two-month period beginning in mid-January, prices were stuck in a narrow band between $1.45 as the high end with $1.35 the bottom end. Rallies in price could not exceed resistance just as any downside movement was contained by support below. The freefall to start 2019 had come to an end and the market was in full balancing mode. Shippers could depend on not paying above a certain threshold and Carriers were not willing to accept rates below a certain level. All participants were awaiting further instructions for the market’s next move, either higher or lower.

              The Freight Futures market operates just like any other financial market, so we instructed onlookers and participants to wait for any sustained price action outside of this tight channel for a declaration of the next direction in rates, and to remember those former price barriers containing the market as they would remain a valuable tool moving forward. This leads us to where we are today; national rates have moved lower and cannot sustain any attempts to head higher.

              Beginning in late March but mostly in April, probes below $1.35 were no longer rejected, the market firmly accepted them. Since April 1, there have been only 4 days with a price above that mark and each best only a penny more. This is how markets behave. Old support becomes new resistance when a market breaks out of a pattern and begins its next phase, which leads us to the question we all want answered; how much lower can rates go?

              We had a sell-off in rates. We had a prolonged balancing period. The market had its chance to move higher and failed to mount a rally of any sort. The job of the market now is to find a bottom in prices and to see with certainty just how little Carriers will accept in this current equilibrium of supply and demand.

When the price of a bushel of corn drops too low, farmers plant less of it. When a barrel of oil becomes too cheap, drillers halt production. At what rate per mile will Carriers idle their trucks?