Weathering the Storms

As disaster strikes, normal supply and demand mechanics sever. Areas are cut from supply, and often the first-best to provide relief are government agencies. Downstream is a bevvy of providers open to help for standard deviations above the mean rate. Market fragmentation keeps margins far from healthcare or defense industry levels, but even the low bids can make you blush if there’s any mention of a FEMA load in transportation.

Even if the pay is good, the danger and haunts can make it a wash for a driver at whatever derivative of the revenue offered. Most often at a fraction. The best and worst of industry participants come out in response of disaster. Unfortunately, the responses have become more frequent and costly. Scott Pecoriello recently offered the following chart from the NOAA. He also mentions that $1B weather events used to happen ~3x a year in the 80s. Now, they’re every three weeks.

Understanding seasonality of fruits and vegetables have turned to which Niño/a patterns, polar vortex, and hurricane forecasts may mean for transportation markets. It is events like these that disjoint transportation systems into non linear patterns of over and undersupply.

Earlier this year, rejection rates surpassed 5%, then dropped 200bps into too much slack following a slew of winter storms that have begun to plague I-80 each Winter. In 2021, the freak Texas freeze repeaked rejections toward 25%.

Most in the industry with any length can name a hurricane or two that shifted the tectonic plates. Hurricanes Katrina, Ike, Sandy, and Harvey are all recognizable precursors to positive upswings in freight environments. Their arrivals with a chart of FEMA annual and supplemental appropriations is overlain with CASS Truckload Linehaul Index values and y/y trends below.

It’s rare to have any one storm fully move the needle, but hurricanes have a timing component that can ignite markets into an upswing the FT recently highlights. Landfall and intensity runs highest during RFP season between September and November.

Simultaneously, the bigger declines in carrier formation correlate with the hurricane season. In down parts of the cycle, exits capitulate right into the strike zone as well.

The COVID era relief policies bucked this trend, yet hold the point about disaster responses having a bigger role in transportation markets. Read about the $37B across 400K+ firms that has prolonged the recent downturn for more.

Once a big enough system lands, any near equilibrium environment will unsettle as capacity gets directly and indirectly directed around the storms. Spot prices naturally move, then get kicked higher on relief demand pricing.

The final fuel comes from seasonal demand pulling capacity into the Midwest and Northwest away from the typical landing areas for hurricanes along the southeastern coasts.

The alignment of these conditions are enough to bring enough disruption ahead of the holidays to anchor sentiment higher. The storms in concert heighten volatility in between.