This week’s DHL Supply Chain Pricing Power Index: 75 (Carriers)
Last week’s DHL Supply Chain Pricing Power Index: 80 (Carriers)
Three-month DHL Supply Chain Pricing Power Index Outlook: 75 (Carriers)
The DHL 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:
Load volumes: Absolute levels and momentum positive for carriers
As we enter the second quarter, the setup couldn’t be much more favorable to carriers. The Outbound Tender Volume Index (OTVI) retreated marginally this week but remains near an all-time high at 15,593.
The economy is in full-on recovery mode, driven by stimulus-aided consumer spending. But the consumer economy is not the only sector in growth mode. The ISM Purchasing Managers Index for the manufacturing sector rose to 64.7 in March, the highest reading since December of 1983.
The National Association of Home Builders/Wells Fargo Housing Market Index has declined since its all-time high in November but remains extremely high at 82.
The economic recovery paired with Americans still being unable to spend on big-ticket services has created a near-perfect backdrop for carriers in Q2. The Port Report, produced by the National Retail Federation and Hackett Associates, is calling for imports to “set records now into the summer” as consumers keep spending on goods.
The most recent stimulus round is providing a massive boost to consumers, who by and large are still stuck at home. Working from home has been a major success for millions of Americans, and people keep spending on at-home upgrades like furniture and online electronics.
Service-based spending categories like airlines, lodging and restaurants all were positively impacted by the stimulus, but the top 5 biggest growth segments came in goods. With the roaring consumer economy, blossoming industrial recovery, white-hot housing market and historically depleted inventories, there’s very little outside of severe inflation that could derail this trucking market.
Tender rejections: Absolute levels positive for carriers, momentum positive for shippers
In the last week of Q1, the Outbound Tender Reject Index (OTRI) jumped back toward its familiar natural ceiling of 30% as shippers rushed to get freight out the doors. After topping out at 28.3% on March 28, the U.S. aggregate OTRI has declined to 26.4% currently. This is an extremely high level by any measure; carriers are still rejecting more than 1-in-4 electronic tenders at contract rates.
As I detailed in last week’s edition, the surge in tender rejections was mostly volume-driven as shippers sought out last-minute shipments. The retreat this week is unsurprising, but what happens over the next few weeks will be telling for the summer season. Produce season is just beginning, and reefer capacity has rarely been tighter. The Reefer Outbound Tender Reject Index is at a staggering 46%, just down from the all-time high in the weeks after the winter storms.
I anticipate higher freight demand in the coming months, and there are no immediate signs of capacity relief visible. The port congestion has prompted retailers to seek alternative routes, which will benefit East Coast ports, but with carriers optimized for LA/Long Beach, it may create lasting volatility. Spot rates will feel some upward pressure, but I don’t foresee rates testing the recent highs again given contract rates continue to be marked up to spot, even if in the form of shorter-term contracts.
Spot rates: Absolute level positive for carriers, momentum positive for shippers
The national spot rate average reversed a three-week downtrend this week from all-time highs at the beginning of March. The national average from Truckstop.com currently sits at $3.16/mile, inclusive of fuel, up 1 cent from last week.
Regionally, rates were a mixed bag this week with exactly half of the 100 lanes in SONAR positive. Spot rates have a high correlation directionally with OTRI, so the upward pressure this week was expected as carriers were able to squeeze a few extra dollars on end-of-quarter runs.
Contract rates are quickly being marked up toward spot rates. Spot rates will remain elevated if the current environment of high demand and relatively scarce capacity remains. There are catalysts including new truck orders and the ending of social distancing measures that will add capacity, but the question remains when and how much. For now, carrier networks remain strained with this level of demand, and I anticipate demand will increase from here when the produce season begins in earnest and more regional economies reopen.
Economic stats: Momentum and absolute level neutral
Several economic releases this week are worth noting.
Weekly jobless claims were released Thursday and give us one of the best close-to-real-time indicators of the overall economy. While those were disappointing, the jobs report for March blew away expectations and is more important.
Jobless claims came in above consensus estimates this week, a break from the recent momentum. Jobless claims were 719,000, which came in above the consensus of 675,000, and an increase from 658,000 last week. On another positive note, there was good news in the form of continuing claims (a rough proxy for unemployment), which were down 46,000 this week to 3.8 million, which marks a new low in the COVID era.
The latest unemployment report from March was very encouraging and blew away expectations (the U.S. economy added 916,000 jobs in March) and suggests the economic recovery is gaining steam from an employment perspective. Meanwhile, the unemployment rate declined to 6%.
Initial jobless claims (weekly in 2020-21)
Turning to consumer spending as measured by Bank of America weekly card (both debit and credit) spending data, total card spending in the latest week available increased by a whopping 45% year-over-year. The picture is slightly less optimistic when focusing on retail spending excluding auto, which was up 32% year-over-year last week. Overall card spending accelerated enormously this week from last week’s 7.4%. This week’s increase by far marks a pandemic high.
As we usually note, there has been an ongoing beneficial mix shift from cash to debit that is somewhat inflating these numbers. One can typically tell this is the case because debit card spending has been far outpacing credit card spending for the past year. This week, credit card spending increased 35% year-over-year, while debit card spending was up 51% year-over-year. After consistently running deeply negative for months and being down precipitously in April, credit card spending does appear to have finally turned the corner.
The main takeaways this week are that consumer spending surged at a blistering rate of 82% on a one-year basis and even by 20% on a two-year basis compared to 2019. Stimulus recipients spending surged 40% on a two-year basis, while non-stimulus recipients spending was still very strong at up 10%. The biggest stimulus winners this time around have been furniture, followed by online electronics, clothing and department stores.
We have been noting that we are expecting a near-complete reversal and decisive change in terms of the winning and losing categories from a year-over-year growth perspective once a large number of Americans are vaccinated. However, at this point, the COVID winners and stay-at-home beneficiaries still haven’t dropped off much because overall spending is so strong, but previously weak categories are surging.
Card spending by American consumers has a strong correlation with truckload volumes, so we will continue to monitor this data closely going forward.
Transportation stock indices: Absolute levels and momentum positive for carriers
This past week was an incredible one overall for our transportation indexes. LTL was the best performer at 12.5%, while logistics was the worst performer at 3.8%.
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