Carriers reject 1-in-5 loads, signaling who has the upper hand in pricing

This week’s FreightWaves Pricing Power Index: 75 (Carriers)

Last week’s FreightWaves Pricing Power Index: 75 (Carriers)

Three-month FreightWaves Pricing Power Index Outlook: 65 (Carriers)

The FreightWaves 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:

Freight demand remains elevated to start February

Tender volumes continue to outpace last year’s first quarter as shippers continue to face supply chain challenges at every turn. John Porcari, the port envoy to the White House Supply Chain Disruptions Task Force, told FreightWaves in an interview that he believes current port volumes “are a floor and not the ceiling.”

Over the past week, the Outbound Tender Volume Index (OTVI) fell by 3.46% against a difficult comparison to the week prior, which was boosted by easy gains from a post-holiday flood of volume. Nevertheless, shippers have signaled their intention to sustain freight demand throughout Q1, though capacity constraints remain prevalent.

Volume levels are continuing to be driven by elevated import volumes clearing through customs. More than 100 vessels remain off the West Coast, keeping freight demand out of the largest markets in the country, especially with warehouse capacity in the Southern California region as tight as it is. Rejection rates falling in the markets might cause a drawdown in OTVI in Southern California in Ontario and Los Angeles.

Accepted tender volumes over the past week underperformed OTVI as the Outbound Tender Reject Index (OTRI) rose on a national level. Accepted volumes are 3.6% lower week-over-week (w/w) but are up 33.4% over the past month, albeit in comparison to the winter holiday season. Even so, accepted tender volumes are still outperforming year-ago levels, currently running 10.3% higher than 2021 levels.

The vast majority of the freight markets in the country experienced a decline in freight volumes over the past week. Of the 135 markets, just 42 of the markets reported weekly increases. The markets reporting the largest increases are those that are set to be hit with winter weather over the weekend. 

Harrisburg, Pennsylvania, the third-largest market in the country by outbound tender volume, was the largest market to experience an increase in volumes over the past week. Tender volumes in the market increased by 3% over the past week, the 30th-largest increase of any market in the country.

The other large markets in the country like Chicago, Dallas and Ontario all experienced a hiccup in tender volumes this week, falling 7.1%, 3.3% and 5.2% w/w, respectively. 

By mode: The Van Outbound Volume Index (VOTVI) declined slightly this past week as it fell by 2.93%. Although van volumes continue to outperform year-ago levels, the gap has narrowed to 5% y/y, which is the widest it has been in a non-holiday-affected week since the middle of August.

The Reefer Outbound Tender Volume Index (ROTVI) was comparatively stable, falling only 1.3% w/w. Severe winter storms continue to roll throughout most of the country, causing shippers to shift goods to temperature-controlled units to protect them against freezing. Winter weather will continue to apply upward pressure on reefer volumes that are already 4.4% higher than 2021 levels.

Rejection rates remain around the 20% mark, despite contracts getting repriced higher

The capacity front remains quite difficult despite contract rates rising to near record levels. The Outbound Tender Reject Index has found some footing around the 20% mark, which is actually higher than rejections were throughout the fourth quarter, with the exception of the tightening around the Christmas holiday.

Over the past week, OTRI, which measures relative capacity in the market, increased by 15 basis points (bps) to 20.29%. OTRI is currently 214 bps below year-ago levels, widening a gap that threatened to close in mid-January.

This rise in tender rejection rates could increase sharply as history threatens to repeat itself. In February 2021, winter storms devastated most of the country, driving up the OTRI by 700 bps over a two-week period. With the current winter storms, we are already seeing thousands of flight cancellations, blackouts and heavy traffic delays across the country. Keep an eye on the weather forecast as tender rejection rates will respond accordingly.

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. With capacity beginning to tighten across the country, there are a fair number of blue markets, which are the markets to focus attention on.

Of the 135 markets, 90 reported higher rejection rates over the past week as winter storms tax capacity from the Northeast to Texas.

The largest markets spanning from the Midwest through the Northeast are seeing capacity tighten in response to the winter weather. Columbus, Ohio, Indianapolis and Harrisburg are all experiencing upticks in rejection rates. Rejection rates have increased by 144 bps, 199 bps and 86 bps, respectively, over the past week.

Carriers continue to head west for freight. Capacity in Ontario has loosened significantly since the beginning of the year. In the past month, rejection rates have fallen by nearly 700 bps. Rejection rates in Ontario have fallen below 10% for the first time since early June 2020, as rejections currently sit at 8.76%.

By mode: Despite a slight decline in rejection rates over the past two weeks, the reefer market is still the tightest of the equipment types within SONAR. Over the past week, reefer rejection rates have fallen by 145 bps to 36.14%. Though the reefer market is remarkably tight, reefer rejection rates are more than 450 bps lower than year-ago levels.

The van market remains one of the most consistent as the Van Outbound Tender Reject Index (VOTRI) has been range-bound between 18% and 20% for the past three months. Van rejection rates did increase by 50 bps over the past week, reaching 19.54%. 

The flatbed market remains the most volatile as rejection rates have had massive swings over the past several months. Over the past week, the Flatbed Outbound Tender Reject Index (FOTRI) fell by 306 bps to 33.99%. Even with the weekly decline, FOTRI is still over 1,700 bps higher than year-ago levels.

Rates are moderating as capacity conditions have improved slightly

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 decline as capacity loosened in the largest markets. The national spot rate, after reaching an all-time high of $3.83 earlier in January, fell to $3.70 per mile, which includes fuel surcharges and other accessorials.

Of the 102 lanes from Truckstop.com’s load board, only 39 reported spot rate increases last week. Rates on lanes in the Midwest and Texas rose in response to incoming winter storms that will affect those markets.

Contract rates set a new all-time this week before reversing course to close out the week. Contract rates crept higher, reaching $2.89 per mile this past week, setting their highest level in a dataset that has tracked rates since January 2017, before falling back to $2.82. Contract rates are reported on a two-week lag, so the increase earlier this week is associated with MLK Day. 

Contract rates, which are the base linehaul rate excluding fuel surcharges and other accessorials that are included in spot rates, are maintaining a similar gap as spot rates, running up 23% y/y.

FreightWaves’ Trusted Rate Assessment Consortium (TRAC) spot rate from Los Angeles to Dallas continues to fall precipitously, reaching an average of $3.57 per mile. Throughout most of Q4 2021, the FreightWaves TRAC rate in this lane remained over $4 per mile but has since declined as capacity has flooded to Southern California.

Conversely, capacity constraints in the Northeast region continue to place upward pressure on spot rates. The FreightWaves TRAC rate from Harrisburg, a major warehousing district, to Chicago, another freight hub as well as a major consumption center, has increased consistently since the beginning of the year. The FreightWaves TRAC rate currently stands at $3.05/mi, 45 cents per mile higher than it was to begin the year, signaling inflationary pressures on spot rates haven’t disappeared completely.

Ultimately, capacity conditions should continue to ease, which should help moderate spot rates moving forward. Capacity is being added to the market, but not at the rate necessary to keep up with demand, yet. With build slots at truck manufacturers effectively sold out, look for any easing in the market to come from the demand side of the equation. Rate pressures, specifically on the contract side of the market, look firmly cemented, at least for the rest of the first quarter and likely continuing well into the second quarter.

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: https://www.freightwaves.com/news
Editor: Tony Mulvey