This week’s FreightWaves Pricing Power Index: 75 (Carriers)
Last week’s FreightWaves Pricing Power Index: 75 (Carriers)
Three-month FreightWaves Pricing Power Index Outlook: 65 (Carriers)
The FreightWaves 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:
Tender volumes still outpacing last year’s strong start
Tender volumes rebounded from an earlier slump caused by the Martin Luther King Jr. Day holiday last week. Twice-shy shippers continue to move freight at a breakneck pace despite the calendar turning to the traditionally softest months of the year.
Over the past week, the Outbound Tender Volume Index (OTVI) rose by 7.07% after a brief retraction last week. Part of this week’s increase comes from an easy gain over a holiday-affected week prior, while another part points to a trend of sustained freight demand throughout Q1.
Congestion at the seaports and in warehouses, particularly in Southern California, will continue to keep freight volumes stronger despite the Lunar New Year, which brings potential shutdowns to Chinese manufacturing. This disruption should allow the ports to continue to work through backlogs and free up much-needed capacity on the ocean.
Accepted tender volumes over the past week caught up to OTVI as the Outbound Tender Reject Index (OTRI) fell on a national level. As contract rates continue to show strength, accepted volumes have risen accordingly by 9.03% week-over-week (w/w), widening the gap with year-ago levels, now running up 11% y/y.
Freight rebounded from last week’s holiday slump, as tender volumes rose again w/w. Of the 135 markets, 99 reported weekly increases. The largest market in the country, Ontario, California, posted a modest 5.93% gain in tender volume, underperforming the overall index.
Detroit, the heartbeat of American auto manufacturing, experienced a dramatic increase in tender volumes over the past week, rising by 41.52%. Additionally, farther south, the Memphis, Tennessee, market experienced a strong increase w/w as tender volumes increased by nearly 25%.
By mode: The Van Outbound Volume Index (VOTVI) maintained a steady clip over the past week, as it crept upward by 7.87%. Van volumes continue to outperform year-ago levels, running up 6.99% y/y, driven by strong consumer demand and limited warehousing space as shippers continue to build back inventory levels.
The Reefer Outbound Tender Volume Index (ROTVI) didn’t fare as well as van volumes, increasing by only 0.73% w/w. Winter weather around the country for the last month has caused shippers to shift goods to temperature-controlled units to protect them from freezing. Winter weather on the East Coast threatens to further inflate reefer volumes that are already 3% higher than 2021 levels.
Contract rates find their equilibrium as carrier compliance stabilizes
Despite contract rates rising over 20% from last year, carriers continue to reject 1-in-5 loads, instead seeking higher-paying opportunities in the spot market.
Over the past week, OTRI, which measures relative capacity in the market, decreased by 144 basis points (bps) to 20.14%. OTRI is now 138 bps below year-ago levels, showing soft but ambiguous signs of relief from high rejection rates.
At the moment, rejection rates appear to be stabilizing around 20%, a level mercifully below the excesses of late 2020 and early 2021. It should be kept in mind, however, that a tender rejection rate of 20% is nearly triple that of pre-pandemic times. The upcoming nor’easter, Winter Storm Kenan, might still exert upward pressure on rejection rates in the Appalachians, the mid-Atlantic and the Northeast.
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 returns to important regions, there are a good number of red markets, where covering loads should prove easier this week.
Of the 135 markets, 57 reported higher rejection rates over the past week, as capacity turned to more profitable, high-volume regions such as Southern California.
The Northeastern markets are bracing for this weekend’s nor’easter and carriers are acting accordingly. Two of the markets within the Northeast, Bristol, New Hampshire, and Augusta, Maine, experienced the largest increase in rejection rates over the past week, rising 1,594 bps and 1,531 bps, respectively.
Like the gold seekers of 1849, capacity continues to flood Southern California in search of import goods from the seaports. Rejection rates fell a further 260 bps w/w in Ontario as carriers have returned to the West Coast.
By mode: Mirroring the national rejection index, reefer and van capacity conditions improved only slightly in the past week. Both the Reefer Outbound Tender Reject Index (ROTRI) and the Van Outbound Tender Reject Index (VOTRI) remain effectively at last week’s levels, signaling that there is no easy fix to the capacity crunch. Over the past week, VOTRI fell by 167 bps to 19.03% and ROTRI fell by 116 bps to 37.59%.
The flatbed market continues to be battered by adverse weather conditions and a spike in housing starts. The Flatbed Outbound Tender Reject Index (FOTRI) increased by 380 bps w/w, bringing the rejection rate to 37.06% at the week’s end. Earlier in the week, however, FOTRI reached its all-time high at 40.14%, easily breaking 2021’s Christmas Eve record at 35.30%. Flatbed rejection rates continue to be over 2.5 times higher than last year’s levels.
Spot rates continue a slow, though vague, descent
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, fell somewhat as capacity loosened in the largest markets. The national spot rate, after reaching an all-time high of $3.83 earlier in January, cooled to $3.75 per mile, which includes fuel surcharges and other accessorials. The drop in spot rates follows the falling rejection rates last week, which hovered around 20%.
Of the 102 lanes from Truckstop.com’s load board, 37 reported spot rate increases last week. Rates on lanes coming out of Southern California, particularly in and around Los Angeles, fell dramatically as capacity besieged the market.
Meanwhile, contract rates crept ever higher to $2.83 per mile this past week, setting their highest level in a dataset that has tracked rates since January 2017. Contract rates are reported on a two-week lag.
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 24% y/y.
FreightWaves’ Trusted Rate Assessment Consortium (TRAC) spot rate from Los Angeles to Dallas continues to fall precipitously, reaching an average of $3.69 per mile. Throughout most of Q4 2021, the TRAC rate in this lane remained over $4 per mile but has since declined as capacity meets market demand.
FreightWaves’ TRAC spot rate from Atlanta to Philadelphia has also returned to sub-$4 levels, at a current FreightWaves’ TRAC spot rate from Atlanta to Philadelphia has stabilized under $4 levels at a current rate of $3.91 per mile. Rejection rates and tender volume for outbound Atlanta has fallen this past week, cooling the market as carriers begin to look for opportunities in other regions.
On the East Coast, a vicious nor’easter is threatening the Appalachians, the mid-Atlantic and the Northeast, so rates should rise as capacity conditions in the region change. Consumer demand remains strong despite inflationary pressures, leading to elevated demand and the tight capacity conditions are keeping the pressure on rates throughout the first quarter of 2022.