Three-month DHL Supply Chain Pricing Power Index Outlook: 65 (Carriers)
The DHL Supply Chain Pricing Power Index uses the analytics and data in FreightWavesSONAR 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:
Christmas holiday dries up volumes
As expected, the Outbound Tender Volume Index (OTVI) took a dramatic downward turn due to the Christmas holiday. Over the past week, OTVI has fallen 23.54% week-over-week (w/w) in the seasonal move lower.
After underperforming year-ago levels for the better part of the last two months, OTVI has expanded the gap with 2020 levels, despite the seasonal pullback. The outperformance is likely to continue to close out the year and kick off 2022. In 2021, tender volumes declined throughout the first month and a half until a snowstorm drove volume levels up to near-record levels. In 2022, transportation networks will still be under immense pressure as supply chain constraints are unabating, thus holding OTVI elevated in comparison to previous years.
Despite OTVI underperforming for much of November and December, when the index is adjusted by the Outbound Tender Reject Index (OTRI), accepted volumes have run well above year-ago levels. Much of the outperformance is improved carrier compliance due to higher contract rates. Accepted tender volumes are currently running up over 16% y/y, even higher than the 7% y/y increase experienced last week.
With OTVI being affected by the holiday, looking at the weekly change across the country is almost irrelevant because tender volumes in 134 of the 135 freight markets within FreightWaves SONAR are lower w/w. Instead, looking at the weekly change in the Headhaul Index (HAUL), which is the difference between outbound tender volumes and inbound tender volumes, provides markets where conditions are changing.
The Atlanta market, the second-largest market in the country, experienced a HAUL increase of over 11% during the past week. When there is a rapid change to the upside, capacity is likely to tighten due to the increased load imbalance.
By mode: Both reefer and van volumes were significantly affected by the holiday. The Reefer Outbound Tender Volume Index (ROTVI) is down 17% w/w. Even with the drawdown, the outlook for reefer volumes is positive moving into the first quarter of 2022.
The Van Outbound Tender Volume Index (VOTVI) is 25% lower w/w, but the decline in tender volumes shouldn’t be a surprise as holidays are essentially a “0” day in a seven-day moving average. As ocean bookings are near peak levels, truckload demand will likely be strong throughout the first quarter, though the quarter is traditionally a soft period for freight.
Rejection rates rise as drivers come off the road for the holidays
While tender volumes moved down due to the holiday, tender rejection rates rose as drivers came off the road. OTRI, a measure of relative capacity in the market, is back above 22% for the first time since early September.
Over the past week, OTRI increased by 150 basis points (bps), one of the single largest w/w increases since late June. Traditionally, there is an uptick in rejection rates around Christmas before slowly declining into the new year. This year, with carriers setting revenue records, they seem to be staying off the roads ahead of New Year’s, driving rejection rates higher after Christmas.
Rejection rates haven’t reached the highs set in 2020 as contract rate increases have led to improved compliance. Additionally, capacity is entering the market, though backlogs at OEMs as well as record high used equipment prices have prevented the market from becoming saturated.
As expected when the overall rejection rate moves higher, the majority of the freight markets experience an uptick as well. Of the 135 markets, 78 experienced rejection rates move higher this week.
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 tightening around the country, there are a lot of blue markets, which are the markets to focus attention.
The two largest markets in the country, Ontario, California, and Atlanta, are among markets that are tightening the fastest compared to other markets of similar size. Ontario traditionally tightens early around holidays as carriers avoid Southern California to stay closer to home. Rejection rates in Ontario increased 208 bps w/w to 17.91%, over 400 bps higher than where rejections were two weeks ago.
In Atlanta, rejection rates increased 250 bps w/w. Capacity is likely to continue to tighten in the coming days as load imbalance has continued to worsen.
By mode: Only the dry van market experienced tightening over the past week. The Van Outbound Tender Reject Index (VOTRI) increased by 201 bps w/w to 22.08%. Van rejection rates are now the highest they have been at any point in the fourth quarter. With the expectations of elevated freight volumes into the first quarter of 2022, van capacity will likely remain quite tight.
The reefer market experienced some loosening over the past week. The Reefer Outbound Tender Reject Index (ROTRI) fell by 136 bps over the past week to 38.03%. Even with the drawdown over the past week, the reefer market is still the tightest of the equipment types within SONAR.
Flatbed rejection rates, which set a new all-time high last week, experienced a less dramatic drawdown. The Flatbed Outbound Tender Reject Index (FOTRI) fell by just 18 bps w/w. Overall, securing flatbed capacity is much more difficult than it was in 2020 and early 2021.
Spot rates rebound as capacity comes offline
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, bounced back as capacity tightened. The national spot rate increased by 12 cents per mile to $3.56, including fuel surcharge and other accessorials, erasing all of the previous week’s increase. Even with the recent pullbacks, Truckstop.com’s national spot rate has maintained a near 20% gap with 2020 levels.
Of the 102 lanes from Truckstop.com’s load board, 80 reported increases last week. The Los Angeles to Portland, Oregon, lane took another large increase over the past week, increasing by 33 cents per mile to $4.96.
Contract rates took a slight step lower, falling 1 cent per mile to $2.74. Contract rates are reported on a two-week lag, thus the impacts of the Christmas holiday have yet to be seen. Expect that contract rates will experience another uptick ahead of the first quarter of the year.
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 18% y/y.
FreightWaves’ Trusted Rate Assessment Consortium (TRAC) spot rate from Los Angeles to Dallas increased modestly over the past week. The FreightWaves TRAC rate in this dense lane increased by 1 cent per mile to $4.02. Expect some upward pressure throughout next week as volume imbalances will likely tighten capacity in Southern California in the coming days.
FreightWaves’ TRAC spot rate from Atlanta to Philadelphia has started to ramp up. The FreightWaves TRAC rate increased by 9 cents per mile to $3.74 over the past week.
Ultimately, some of the inflationary pressures on rates have alleviated themselves as capacity has returned to the market. Pressure remains on contract rates to move higher in 2022, due to the elevated rejection rates, but the move higher may not be as pronounced as it was in 2021. Either way, carriers still hold most of the pricing power in the market, though shippers are slowly clawing it back in their favor.
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