This week’s DHL Supply Chain Pricing Power Index: 85 (Carriers)
Last week’s DHL Supply Chain Pricing Power Index: 85 (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.
Outbound Tender Volume Index (OTVI) up and to the right — sound familiar? OTVI surged to another record high this week and carriers are now rejecting one in four contracted loads across the country. Truckstop.com has the national average RPM at $2.67. Some heavily trafficked lanes such as LA to DAL are fetching $3.02/mile.
The Pricing Power Index is based on the following indicators:
Load volumes: Absolute levels and momentum positive for carriers
Three weeks ago, the Passport Research team titled its weekly trucking markets update “Can you take me higher?” That question has been answered with a resounding YES over the month of August and nothing has changed this week. OTVI climbed 3.3% this week to another all-time high of 15,635.2.
OTVI has posted a string of consecutive all-time highs for many weeks now. It is worth noting that our volume index does include some level of rejected tenders, so the overall level of freight is slightly lower than the indexed reading. However, this does not mean the index is not indicative of the overall freight level. Freight volumes remain well above either 2018 or 2019 by roughly 20%-25%.
If anyone needs more validity to the state of the market, Kevin Hill, founder and CEO of CarrierLists, recently explained to the Freight Intel Group that the demand for his company’s product reminds him of early in the 2018 cycle. CarrierLists produces and sells lists of carrier information and markets to freight brokerages. Hill went on to say freight brokerages are desperate not to lose their high-quality customers because of not being able to meet said customer demand. To avoid this, brokers are looking for capacity in every way they can, including CarrierLists.
Hurricane Laura has become a major freight event, disrupting capacity and volume movement in the east Texas and southern Louisiana markets. FreightWaves is covering the hurricane and its aftermath from all angles. Stay tuned for continual updates.
Tender rejections: Absolute levels and momentum positive for carriers
Carriers continue to reject contracted freight at an unrelenting pace. As mentioned above, shippers and brokers are searching for capacity under every rock. The Outbound Tender Reject Index (OTRI) climbed another 2.6% this week to 25.09%.
The demand throughput has carriers sitting comfortably rebidding or rejecting loads full-stop. OTRI at 25% indicates one in four contracted loads is being rejected across the country. This is historically an extremely high rate and is close to what we believe is the upper bound of the index. We believe the market dynamic shifts at this level and we begin seeing contracted freight renegotiated at higher rates, thus leading to lower rejection rates. This occurred the last time OTRI reached this level, and we are hearing a similar story now from market participants.
The only milestone left in this index’s path is the possibility of a new all-time high. When the market transitioned out of 2018 and added a swath of new capacity, we felt it would be some time before tender rejections trended towards 2018 levels. But a pandemic that limits service spending and spurs trillions in government stimulus has induced the market into unprecedented demand. The only question now is how long until the market transitions out? The freight market cycles are short and often violent in this market, so “get it while the gettin’s good.”
Spot rates: Absolute levels neutral, momentum positive for carriers
Spot rates surged forward again this week to another yearly high. Below are the 100 lane pairings from Truckstop.com in SONAR. Spot rates increased in a majority of markets this week, with the most highly trafficked lanes mostly showing signs of strong rate increases. The West Coast has picked up again after a slight lull over the course of the month.
Rates have been gradually rising off the bottom in early May and are now above the 2018 summer peak. Rates are up more than 15 cents/mile since last week. The Truckstop.com national all-in rate stands at $2.67/mile but is poised to go higher with no signs of demand slowing and a major hurricane wreaking havoc in the Southeast with winds above 160 mph.
Economic stats: Momentum and absolute level neutral
Several economic releases this week are worth noting.
Weekly jobless claims were released Friday and give us one of the best close-to-real-time indicators of the overall economy.
This week’s jobs news was a slight setback relative to the improved momentum and change in tone we had seen in recent weeks and months. Initial jobless claims came in at 1 million last week, which was in line with consensus expectations. This comes on the heels of two weeks ago being the first week that initial jobless claims fell below 1 million since mid-March. Jobless claims have now fallen in 19 of the past 22 weeks dating back to the peak weekly jobless claims number from late March. There was good news, though. Continuing claims (a rough proxy for unemployment) dropped 223,000 to 14.54 million.
Initial jobless claims (weekly in 2020)
Source: CNBC, U.S. Department of Labor
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 was essentially up 1.4% year-over-year. This is within the recent flattish range but well off the ~40% declines from late March and early April. As we usually note, keep in mind there is a beneficial mix shift from cash to debit ongoing that is somewhat inflating these numbers. One can tell this is the case from the fact that debit card spending is currently running up 10% year-over-year and far outpacing credit card spending, which is down 9% year-over-year.
The main takeaways this week are that while overall spending is up modestly, there are clear winners and losers in terms of spending categories and income cohorts. As we have noted for a few weeks, a warning sign has emerged recently that bears watching: Spending among those no longer receiving unemployment insurance (UI) benefits is starting to fall and is particularly acute with lower-income Americans. Spending by lower-income Americans who previously received UI is falling at a rate of over 15% year-over-year; previously, the low-income population was the strongest spending cohort. It is less bad for those in the middle- and upper-income cohorts that previously received enhanced UI but still falling materially. If Washington does not quickly renew the expired benefits, there could be a sharp drop-off in consumer spending and therefore trucking volumes in coming weeks. The current talk in Washington is that a deal is far away as negotiations have reached a stalemate.
The other primary differences to emerge this week are twofold. One, while spending among those no longer receiving enhanced UI is falling at an accelerating rate, spending from the employed is rising and more than offsetting the drag from the unemployed. Second, the spending drag from the lower-income unemployed missing out on an extra $600 per week is clearly manifesting itself in discretionary categories, where spending on apparel, home improvement and general merchandise is slipping on the low end. However, spending on essentials and hybrid categories like restaurants and bars is faring far better among the low-income unemployed.
A warning sign: Spending among those affected by delayed UI is falling
By category, online electronics (up 96% year-over-year this week) and online retail (up 65%) continue to be the standout performers. Other strong categories include home improvement and furniture. Grocery has stabilized at 12% year-over-year. Restaurant and bar spending has staged a huge comeback. Brick-and-mortar retail spending has improved dramatically as most states reopen but has stalled in the negative mid-single-digit range year-over-year as the case count remains elevated (but falling) in many states. Finally, airlines, lodging and entertainment continue to be the worst-performing categories by far, but lodging is significantly up off the bottom and appears to be gaining momentum in recent weeks.
Card spending by American consumers has a strong correlation with truckload volumes, so we will continue to monitor this data closely going forward.
Source: Bank of America Merrill Lynch
Transportation stock indices: Absolute levels and momentum positive for carriers
It was a solid week for our transportation indices following several strong weeks over the past couple of months. Logistics was the standout performer at 2.7%, and truckload was the worst performer but still up 0.7% this week.
For more information on the FreightWaves Freight Intel Group, please contact Kevin Hill at firstname.lastname@example.org, Seth Holm at email@example.com or Andrew Cox at firstname.lastname@example.org.
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