Freight volume is deflated by rising costs against seasonal expectations

This week’s FreightWaves Supply Chain Pricing Power Index: 65 (Carriers)                                

Last week’s FreightWaves Supply Chain Pricing Power Index: 70 (Carriers) 

Three-month FreightWaves Supply Chain Pricing Power Index Outlook: 55 (Carriers)

The FreightWaves Supply Chain Pricing Power Index uses the analytics and data in FreightWaves SONAR to analyze the market and estimate the negotiating power for rates between shippers and carriers.

The Pricing Power Index is based on the following indicators:

OTVI takes an unseasonable dip, but accepted freight volume outperforms 2021

Tender volumes declined over the week, an unseasonable trend that could signal the coming impact of inflationary pressures. The Outbound Tender Volume Index (OTVI) slid under 14,000 on Wednesday, a level it has not touched since the start of 2022.

OTVI declined by 3.52% over the past week and is down 9.26% year-over-year (y/y), reaching its lowest point since early January. In early January, drivers were slower to return to the road than prior years, preferring an extended winter holiday after a year of record profit. Excluding both this period and other holiday-affected weeks, OTVI is at its lowest level since February 2021, when the flow of freight was hamstrung by severe winter storms nationwide. 

Those winter storms, however, caused tender rejection rates to skyrocket. Since OTVI includes both accepted and rejected tenders, it can be inflated by a rise in rejection rates. Looking at accepted tender volumes, which is OTVI adjusted by the Outbound Tender Reject Index (OTRI), we actually see growth by 3.15% y/y, though a decline of 2.28% still occurred week-over-week (w/w).

In short, tender volumes are on an unseasonable decline, but the decline is not as dire as OTVI alone might portray. The Federal Reserve recently announced a hike in interest rates, its first increase since 2018. Inflationary pressures are squeezing the consumer, as retail sales (excluding auto and gasoline) were down in February by 0.4% month-over-month (m/m). Mortgage rates, meanwhile, topped 4% for the first time since 2019.

Almost all of the largest markets saw a contraction in freight volume this week, though tender volumes did rise across smaller markets. Of the 135 total markets, a mere 39 reported weekly increases. The two largest markets in the country by outbound tender volume, Atlanta and Ontario, California, saw w/w declines in volume by 0.8% and 0.6%, respectively.

Charleston, South Carolina, which is home to one of the largest seaports on the East Coast, experienced a 14.75% jump in outbound volume w/w. Shippers are increasingly frustrated by dwell times and congestion in major West Coast ports, preferring to pay instead for a longer route to Eastern seaports.

By mode: Following the overall OTVI, both reefer and dry van volumes are down this week. The Van Outbound Tender Volume Index (VOTVI) is down 3.67% w/w, slightly underperforming against OTVI. Worse yet, VOTVI is 8% below year-ago levels, though the aforementioned decline in tender rejections makes for a difficult comp.

The Reefer Outbound Volume Index (ROTVI) paints a bleak picture, as it is down 6.6% w/w. Although ROTVI is down almost 30% y/y, reefers experienced the biggest spike in tender rejections this time last year, with over 1-in-2 loads being rejected. As a result, ROTVI was heavily inflated. Despite the current state of reefer volumes, food shipments during the spring season are fairly inflexible, as produce must be moved within a narrow window. Therefore, ROTVI is expected to bounce back in the coming weeks.

Rejection rates continue to plummet, frustrating carriers

Last week, OTRI dipping beneath 18% was a cause for celebration. This week, OTRI sank to almost 16%, leaving carriers and shippers alike where the new floor for tender rejections will be.

Over the past week, OTRI, which measures relative capacity in the market, fell to 16.36%, a change of 106 basis points (bps) from the week prior. OTRI is now 984 bps below year-ago levels — a welcome sight for shippers that feared 2021 heralded a new norm for rejection rates.

Any addition to capacity is ultimately limited by the ongoing semiconductor crisis, which has worsened due to the Russia-Ukraine conflict. Prior to the conflict, Ukraine was responsible for nearly half of the global supply of neon, which is used by lasers in chip manufacturing. Meanwhile, Western trade sanctions against Russia have limited the availability of palladium, an element used in many semiconductors. Nevertheless, the overall decline in freight volume is placing downward pressure on rejection rates, as carriers are more willing to comply along their contracted lanes.

The map above shows the Weighted Rejection Index (WRI), the product of the Outbound Tender Reject Index-Weekly Change and Outbound Tender Market Share, as a way to prioritize rejection rate changes. As capacity is generally finding freight, there are only a handful of blue markets, which are the ones to focus attention on.

Of the 135 markets, only 39 reported higher rejection rates over the past week as carriers compete for loads among quieter freight demand.

Denver was one of the markets hit hardest by rising rejection rates, as winter storms blanketed the region in snow and ice, making driving conditions less than desirable. Capacity in Texas, on the other hand, benefited from a seasonal migration of carriers that are following the flow of produce from Mexico and from within Texas itself.

By mode: Reefer and dry van rejection rates fell this week, though flatbed might be at the start of a seasonal upswing in rejections. The spring typically sees a surge in housing starts, driving demand for flatbeds due to their ability to haul construction materials. Given that inventory of previously owned houses is greatly outpaced by buyers’ demand, building activity could be hotter than usual this year, although construction companies are still facing labor shortages and supply chain issues. As of now, the Flatbed Outbound Tender Reject Index (FOTRI) sits at 38.22%, up by 53 bps w/w and inching closer to 40%.

Van rejections are still driving the decline in the overall OTRI, as the Van Outbound Tender Reject Index (VOTRI) is currently at 16.01%, dipping below 16% on Wednesday. VORTI is now 111 bps lower w/w. Capacity conditions in the reefer marker are also easing, as the Reefer Outbound Tender Reject Index (ROTRI) fell 80 bps to 27.55%.

Spot rates fall to 2021 levels, but contract rates hit new highs

The spot rate data available in SONAR from Truckstop.com is updated every Tuesday with the previous week’s data.

The Truckstop.com national spot rate, based on the top 100 lanes on Truckstop.com’s load board, continued to drop as capacity loosened across the markets. The national spot rate, which was creeping up closer to $4 per mile at the beginning of 2022, has since fallen to $3.45 a mile, which includes fuel surcharges and other accessorials.

Of the 102 lanes from Truckstop.com’s load board, 21 reported spot rate increases last week, down from 42 lanes the week prior. Despite a falling OTRI and OTVI, spot rates are likely to follow the rising costs of diesel fuel, which has spiked to $4.85 a gallon.

Contract rates set a high of $2.91 per mile in mid-February and have not budged far from that price point since. Contract rates, which are the base linehaul rate excluding fuel surcharges and other accessorials that are included in spot rates, have since broken that record high and now sit at $2.94 a mile, rising 3 cents per mile w/w.

FreightWaves’ Trusted Rate Assessment Consortium (TRAC) spot rate from Los Angeles to Dallas has experienced unstoppable downward momentum since the start of 2022. A week ago, the rate dipped below $3 per mile, leaving December’s rates of $4-plus per mile seem very distant. This week, the rate fell 9 cents per mile to $2.89. Capacity is fairly loose in Los Angeles and a major correction in rates is not on the immediate horizon, so shippers moving freight along this lane can rest easily.

The FreightWaves TRAC spot rate from Atlanta to Philadelphia, on the other hand, has seen little change over the past two weeks. Although outbound volume is down in Atlanta this week, so also are rejection rates. The rate from Atlanta to Philadelphia currently sits at $3.78 per mile, down 2 cents per mile from the previous week. It is likely that Atlanta will soon get a boost in volume from local and Florida produce, but Atlanta is also a major consumption center.

Nationwide, capacity conditions should continue to ease, driving OTRI down by a few more percentage points in the months ahead. Spot rates will follow tender rejections accordingly, as low volume and record-high contract rates will persuade carriers to stay in their contracted lanes. Although March retail sales might take a significant tumble, produce season should provide some upward pressure on both freight volume and carrier rates for the coming weeks.

For more information on the FreightWaves Freight Intel Group, please contact Kevin Hill at khill@freightwaves.com or Tony Mulvey at tmulvey@freightwaves.com.

Source: freightwaves - Freight volume is deflated by rising costs against seasonal expectations
Editor: Michael Rudolph