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This week’s FreightWaves Supply Chain Pricing Power Index: 40 (Shippers)

Last week’s FreightWaves Supply Chain Pricing Power Index: 40 (Shippers)

Three-month FreightWaves Supply Chain Pricing Power Index Outlook: 35 (Shippers)

The FreightWaves 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.

This week’s Pricing Power Index is based on the following indicators:

Volumes rise in the back half of the week

Volumes saw marginal gains this week, building on the previous week’s slight increase. This news is welcome to anyone holding their breath for a peak season in October. But as the data has made abundantly clear, peak season in 2022 will certainly be less “peaky” than in years past. With imports weakening, the major source of freight will be from already-full coastal warehouses that need their cargo moved inland.

Tender volumes fail to impress:
SONAR: OTVI.USA: 2022 (white), 2021 (green) and 2020 (orange)
To learn more about FreightWaves SONAR, click here.

This week, OTVI rose 0.95% on a week-over-week (w/w) basis. On a year-over-year (y/y) basis, OTVI is down 25.76%, although y/y comparisons can be colored by significant movements in tender rejections. OTVI, which includes both accepted and rejected tenders, can be artificially inflated by an uptick in the Outbound Tender Reject Index (OTRI).

Accepted volumes are well below 2020 levels:
SONAR: CLAV.USA: 2022 (white), 2021 (green) and 2020 (orange)
To learn more about FreightWaves SONAR, click here.

Contract Load Accepted Volume (CLAV) is an index that measures accepted load volumes moving under contracted agreements. In short, it is similar to OTVI but without the rejected tenders. Looking at accepted tender volumes, we see a slight rise of 0.99% w/w but also a fall of 11.47% y/y. This y/y difference confirms that actual cracks in freight demand — and not merely OTRI’s y/y decline — are driving OTVI lower.

Truckload markets suffered another blow last week, when the Port of Los Angeles announced its lowest level of import volume since 2009. While I have stated that comparisons to 2019 were unfavorable, comparisons to 2009 — when markets were plagued by the Great Recession — are downright alarming. These softening imports are doubly concerning because September is supposed to be a robust month for volume, as shippers get their holiday goods from overseas. Nor is a flood of demand on the horizon, as Port of LA Executive Director Gene Seroka predicted that volumes in October would “probably be about the same or a little lighter. It’s going to be a soft October.” U.S. Customs data from SONAR indeed shows that the Port of LA’s volumes are, at the time of writing, weaker in October than September.

While it is certainly true that part of Los Angeles’ troubles can be attributed to other, smaller ports (like Port Houston) gaining market share, it is also true that import volumes are lowering across the board. Georgia’s Port of Savannah, which rose to increased prominence during the pandemic, saw volumes decline in September by 23% from the previous month. Even the aforementioned Port Houston, which just posted its second-busiest month in September, saw a monthly decline of 7.66% in handled volume. In short, the bulk of freight demand — or such as remains — will be from coastal warehouses looking to move their goods farther inland.

Volumes rise in some heavyweight markets this week:
SONAR: Outbound Tender Volume Index – Two-Week Change (OTVIF).
To learn more about FreightWaves SONAR,
click here.

Of the 135 total markets, 76 reported weekly increases in tender volume as freight demand hit regions with inconsistency.

Many of the larger markets posted healthy gains in volume this week. The geographically small market of Los Angeles saw freight demand leap 63.6% w/w, climbing to be the largest market by outbound tender volume. This gain might have cannibalized volumes from the neighboring market of Ontario, California, which usually routes import volumes from the ports of LA and Long Beach to the rest of the country. Ontario volumes contracted slightly this week, falling 0.96% w/w.

By mode: After weeks of consecutive decline, both dry vans and reefers are seeing upticks in volume, with reefers being a major driver behind w/w gains in the overall OTVI. The Van Outbound Tender Volume Index (VOTVI) was up 0.55% w/w, largely due to peak season activity for consumer packaged goods. Though VOTVI was down 25.6% y/y, the bulk of this difference stems from rapidly declining tender rejections over that same period. Accepted van volumes are nevertheless down 11.69% y/y.

Reefer volumes were up 1.57% w/w in the heavyweight reefer market of Lakeland, Florida, coming down from a 24.3% w/w gain last week. Florida, with good reason, is mainly known for its backhaul markets: An aged population and a small manufacturing base mark the state as a consumer. Yet when it comes to refrigerated goods (such as produce), Lakeland is among the top markets by outbound volume. Accordingly, the Reefer Outbound Tender Volume Index (ROTVI) was up 5.7% w/w. As with VOTVI, ROTVI is down a staggering 29.23% y/y, though accepted reefer volumes are actually up 4.76% y/y.

Rejection rates accelerate their downward spiral

Earlier in the month, it was newsworthy that OTRI finally broke below the 5% threshold after spending months between 5% and 6%. But OTRI, despite having little room for further decline, has continued to fall precipitously. Not only is OTRI well below 2019’s average of 6.08%, it is quickly approaching 2019’s yearly low of 3.78% — a figure that should be considered the data set’s floor.

OTRI threatens to fall below 4%:
SONAR: OTRI.USA: 2022 (white), 2021 (orange) and 2020 (green)
To learn more about FreightWaves SONARclick here.

Over the past week, OTRI, which measures relative capacity in the market, fell to 4.34%, a change of 4 basis points (bps) from the week prior. OTRI is now 1,550 bps below year-ago levels.

With the third quarter having come to a close in September, Q3 earnings season among large carriers reinforced fears of a freight slowdown, despite healthy reports across the board. J.B. Hunt led with y/y gains in all but one of its five segments — the outlier was its brokerage division, which saw operating income slide 8.4% y/y. This discrepancy between its brokerage and dedicated truckload segment largely points to ailments in the spot market, which saw rates decline six-plus months before their contractual counterparts. Darren Field, head of intermodal at J.B. Hunt, noted that seasonal volumes are underperforming against expectations such that “peak season this year just doesn’t appear to be much of an event.”

These sentiments were echoed by Jim Gattoni, the president and CEO of Landstar, who stated that “everyone is [anticipating a] flat to muted peak season.” That “everyone” includes Adam Miller, CFO at Knight-Swift, who cautioned that Q4 would be “a muted seasonal freight environment combined with significantly fewer spot market opportunities.”

Capacity tightens in the Carolinas:
SONAR: WRI (color)
To learn more about FreightWaves SONAR, click here.

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. As capacity is generally finding freight, a few regions this week posted blue markets, which are usually the ones to focus on.

Of the 135 markets, 51 reported higher rejection rates over the past week, though 34 of those reported increases of only 100 or fewer bps.

The adjacent markets of Greenville, South Carolina, and Charlotte, North Carolina, each posted significant gains in their markets’ local OTRI. Rejection rates jumped 406 bps w/w in Greenville and 398 bps w/w in Charlotte. These latest increases come after Greenville saw an unexpected surge in tender volumes last week, with several manufacturing firms investing heavily in plants throughout the region.

SONAR: VOTRI.USA (white); ROTRI.USA (green); FOTRI.USA (orange)
To learn more about FreightWaves SONAR, click here.

By mode: Flatbed rejection rates just recovered from Wednesday’s dip near 12%, though they still linger near their lowest level since January 2021. The Flatbed Outbound Tender Reject Index (FOTRI) fell 59 bps w/w to 12.98%. Vans are in a similarly precarious position, with the Van Outbound Tender Reject Index (VOTRI) falling 11 bps w/w to 4.13%. Reefer rejection rates, however, managed to recover from losses seen earlier in the month, as the Reefer Outbound Tender Reject Index (ROTRI) climbed 82 bps w/w to 6.59%.

Contract rates appear to begin Q4 decline

Spot rates took a brutal tumble this week, losing the inconsistent gains of early October. Rising diesel prices, the nationwide average of which is now at $5.34 per gallon, can only do so much to offset waning linehaul spot rates. While it seemed earlier that spot rates were yo-yoing near what looked to be their local floor, it is abundantly clear that they have room to fall further.

Contract and spot rates are less than ideal:
SONAR: National Truckload Index, 7-day average (white; right axis) and dry van contract rate (green; left axis).
To learn more about FreightWaves SONAR, click here.

This week, the NTI, which includes fuel surcharges and other accessorials, fell 8 cents per mile w/w to $2.56. Since diesel prices began October under $4.85 per gallon and have shot up more than 50 cents per gallon in only two weeks, this loss in the NTI is concerning — all the more so as it is approaching 2019’s average of $2.06 per mile, a figure that, after adjusting for inflation, approximates $2.41 per mile.

As should be expected, the NTI’s losses can be attributed to weakening linehaul spot rates. The linehaul variant of the NTI (NTIL), which excludes fuel surcharges and other accessorials, fell 10 cents per mile w/w to $1.73.

Contract rates, which are reported on a two-week delay, are beginning to show signs that their start-of-quarter bump is fading. Both spot and contract rates tend to receive a boost at the beginning of each quarter as companies sort out their financials. But the downturn, should it persist, came quicker in Q4 than in previous cycles. Contract rates, which exclude fuel surcharges and other accessorials like the NTIL, fell 1 cent per mile w/w to $2.69.

To learn more about FreightWaves SONAR, click here.

The chart above shows the spread between the NTIL and dry van contract rates, showing the index has continued to fall to all-time lows in the data set, which dates to early 2019. Throughout 2019, contract rates exceeded spot rates, leading to a record number of bankruptcies in the space. Once COVID-19 spread, spot rates reacted quickly, rising to record highs on a seemingly weekly basis, while contract rates slowly crept higher throughout 2021. 

As the linehaul spot rate remains 82 cents below contract rates, there is still runway for contract rates to decline throughout the next six months.

SONAR: FreightWaves TRAC rate from Los Angeles to Dallas.
To learn more about FreightWaves TRAC, click here.

The FreightWaves TRAC spot rate from Los Angeles to Dallas, arguably one of the densest freight lanes in the country, seems close to bottoming out. Over the past week, the TRAC rate remained constant at $2.48 per mile. The daily NTI (NTID), which has sunk to $2.50, is now barely outpacing rates from Los Angeles to Dallas.

SONAR: FreightWaves TRAC rate from Atlanta to Philadelphia.
To learn more about FreightWaves TRAC, click here.

On the East Coast, especially out of Atlanta, rates saw a much steeper decline, sliding in line with the NTID. The FreightWaves TRAC rate from Atlanta to Philadelphia fell 10 cents per mile this week to settle at $2.50. Rates along this lane have been dropping stepwise since mid-July, when the TRAC rate was $3.48 per mile.

For more information on the FreightWaves Passport, please contact Kevin Hill at [email protected], Tony Mulvey at [email protected] or Michael Rudolph at [email protected].

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Michael Rudolph

Michael Rudolph is a research analyst at FreightWaves and is a former freight broker. Prior to entering the logistics industry, Michael worked in academia. He holds an MA from the University of Chicago.