SONAR sightings for April 13: Competitive intermodal lanes, shipper playbook, more

The highlights from Wednesday’s SONAR reports are below. For more information on SONAR — the fastest freight-forecasting platform in the industry — or to request a demo, click here. Also, be sure to check out the latest SONAR update, TRAC — the freshest spot rate data in the industry.

Intermodal/dry van competitive lanes

Overview: Dry van rates continue to drop sharply in intermodal-competitive lanes.

Highlights:

• While average nationwide dry van rates have declined 67 cents per mile from their Jan. 9 peak, the decline has been more severe than that in many of the intermodal-competitive lanes. 
• For example, dry van rates are off about $1 per mile in the CHI-EWR/Linden and CHI-ATL lanes (middle two graphs below). 
• Despite the across-the-board decline in dry van spot rates this year, intermodal spot rates are up in many of the major domestic intermodal lanes year-to-date. 

What does this mean for you?           

Brokers: Brokers should continue lowering their bids for capacity in the densest intermodal lanes. SONAR shows that those lanes have tender rejection rates and spot rates that are falling faster than the U.S. freight market as a whole. On top of that, many of the lanes that fit that description face competition from rail intermodal. 

Carriers: To maximize revenue per mile, carriers may want to avoid the largest freight markets, which have generally shown more loosening than the small and midsized freight markets. It may be more challenging to get reloaded in the small and midsized markets, but in most cases there is less competition from rail intermodal. 

Shippers: Shippers with intermodal contracts in place should keep an eye on dry van truckload rates even in lanes that are typically “intermodal lanes,” such as LA to Dallas. Highway rates have fallen faster than most expected this year, which could change the relative economics between modes. Meanwhile, rising intermodal spot rates in certain lanes suggests that the Class I railroads have become more concerned with securing intermodal capacity for contracted shippers, which could lead to a reemergence of intermodal service issues.

Around the country volumes have fallen and show no signs of increasing anytime soon. Typically during this time of year, outbound tender volumes usually start to increase as shippers start shipping their spring and summer goods. However, as consumers continue shifting their spending habits toward experiences and away from consumer goods, volumes will continue to level out and return to pre-pandemic levels. The interesting thing to note is that as volumes are decreasing across the nation, outbound tender lead times are rising. When capacity loosens you can expect outbound tender lead times to not jump in response. Keep those tender lead times as high as possible to avoid getting charged an unnecessary amount.

Lane to watch: LA to Seattle

Overview: Spot rates continue declines as volumes and rejections reach record lows out of Los Angeles. 

Highlights:

• Spot rates have hit six-month lows, falling to $3.66/mile compared to early January highs at around $5.30 per mile, a quarterly decline of $1.64/mile. 
• Outbound tender rejections plummeted to 3.72% out of LA and 3.64% from LA to Seattle, the lowest levels since pandemic-related declines during April 2020.
• Outbound tender volumes edged lower from highs of 350 to 400 bps but remained elevated at 341.12 bps. Greater capacity in the market is having an impact as observed in outbound tender rejection levels. 

What does this mean for you?

Brokers: Rapid outbound tender rejection levels indicate that greater trucking capacity continues to enter the market and spot rates are reflecting this trend. Carriers that land in LA now run the risk of losing significant pricing leverage due to localized overcapacity relative to truckload demand. Due to higher outbound tender volume levels, there is greater opportunity to put pressure on prices, and depending on the type of customer, take advantage of the information delay by increasing margins. 

Carriers: Outbound tender rejections in the single digits will put greater pressure on service levels and outbound tender compliance from customers seeking savings after over two years of record spot market prices. Expect customers and brokers to push down prices with both contract and spot market freight potentially affected. During these times, an emphasis on service and relationships might be a way to navigate the downward price pressure from other carriers in the market. 

Shippers: Outbound load tender acceptance levels are finally in a favorable situation for shipping goods outbound. Take this opportunity to evaluate the performance and prices provided by incumbent carriers on contracted lanes and leverage this volatility and overcapacity to push down prices on spot market loads. Depending on price and direction of your load, it may be cheaper to utilize the spot market at the expense of tendering committed volumes to incumbent carriers. Regardless of the direction, the record number of new carriers entering the market is finally having a notable impact in major metro markets just as consumer demand cools due to inflation. 

Consumer credit utilization increased substantially in the most recent report with data through February. Overall debt increased $42 billion through February, now at a total of $4.5 trillion. Revolving credit is largely made up of credit card spending and increased by 20.7%. The rapid rise throughout February is concerning since there was a rampant increased in gas prices throughout March due to the Russia-Ukraine conflict. We also saw spending on durable goods moved down over the same period. Increasing credit card usage will lower consumers’ ability to spend on goods in the coming months and take away from freight volumes. The job market strength is the last post propping up consumer activity.

Retail sales, industrial production, the Producer Price Index and Consumer Price Index will all be updated in the coming week. Retail sales were decent on the surface in the last report, but digging deeper, much of the upward movement came from spending at gas stations throughout February. The rate of growth for industrial production has likely peaked and a slower, more moderating trend will likely take hold. Defense spending is a volatile segment but is expected to increase moving forward. Flatbed trailer capacity will likely continue to ease but not at the same rate as reefer or van trailer capacity because there is still a fair amount of backlog for construction and infrastructure projects. 

Source: freightwaves - SONAR sightings for April 13: Competitive intermodal lanes, shipper playbook, more
Editor: FreightWaves Staff