This week’s DHL Supply Chain Pricing Power Index: 70 (Carriers)
Last week’s DHL Supply Chain Pricing Power Index: 70 (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:
Tender volumes pick up slightly during the final week of October
The Outbound Tender Volume Index (OTVI), shippers’ requests for capacity, has slowly started to climb over the past week. OTVI increased by 1.1% over the past week, the strongest weekly increase during the past month.
Volume levels followed the traditional pattern in October as freight volumes ended the month lower than where they began the month. In 2019, tender volumes fell 3.8% in October. In 2020 tender volumes were down 0.4% throughout October. In 2021, tender volumes fell by 2.2%. Even though tender volumes were down in October, freight volumes maintained some strength compared to the previous years. Tender volumes are currently running up nearly 1% year-over-year (y/y).
The outlook for volume for peak season still looks strong given the consumer outlook during retail season looks strong. Bank of America’s total card spending continues to outperform the two previous years, running at nearly a 20% growth rate. Additionally, the retail inventory-to-sales ratio is at historically low levels and as shippers try to rebuild inventory levels, freight volumes will remain strong.
A recent Deloitte retail survey expects that holiday spending will be stronger in 2021 than it was in 2020. The survey concluded that average expected gift spending increased 3% y/y, but expected experience spending increased by 15%. Overall average expected spending, which combines gift, non-gift and experience spending, is expected to increase by 5%. A vast majority of the growth stems from high-income ($100k+) earnings, with expected spending increasing 15% y/y.
Supply chain concerns continue to be one of the largest drivers of holiday shopping patterns this holiday season; 75% of the consumers in the survey expect stockouts during the season, with 49% of consumers expecting stockouts of electronics. The survey also included viewpoints from 30 retail executives, of which 43% expected delayed delivery of holiday inventory. Additionally, 89% of the retail executives cited supply chain challenges for ordering early this year.
Ultimately, as traditional peak season approaches rapidly, expect that tender volumes will have a strong November and likely a strong December as well. As shippers try to rebuild inventory levels, tender volumes may maintain the strength into January, which is traditionally a softer period for freight.
Adjusting OTVI, which includes both accepted and rejected tenders, by the tender rejection rates shows the true level of freight moving through networks. Accepted tender volumes are running up 1.4% week-over-week (w/w), maintaining strength compared to last year, running up 7.4% y/y. The strength in accepted tender volumes has been driven by the decline in rejection rates over the past three months.
Across the country, volume levels in 72 of the 135 markets tracked by FreightWaves SONAR were higher over the past week. The largest freight markets in the country have recovered after a couple of slow weeks.
The two large Southern California markets, Ontario and Los Angeles, have been underperforming in recent weeks but finally broke the downward trend this week. Tender volumes in Ontario increased by 3.1% w/w. With the recent uptick in freight volumes in the market, volumes in Ontario are more than 1.5% higher than a year ago. In Los Angeles, tender volumes increased by 2.52% w/w, but are still down over 15% y/y.
Freight volumes in the Northeast picked up over the last week as well. Elizabeth, New Jersey, which has been an outperformer in recent weeks, witnessed another uptick in tender volumes over the past week, jumping 3.21% w/w. Harrisburg, Pennsylvania, which is the third-largest market in the country, increased by 3.11% w/w.
The only two large markets that experienced freight volumes decline over the past week were Dallas and Chicago. Tender volumes in Dallas fell by nearly 4% over the past week, while in Chicago tender volumes fell by over 7% w/w.
By mode: It was another strong week in the temperature-controlled market as reefer volume growth has accelerated. Reefer volumes as measured by the Reefer Outbound Tender Volume Index (ROTVI) increased by 1.85% w/w. Even with this week’s increase, reefer volumes continue to run down by over 4% y/y, though winter weather and increased demand around the holiday season are going to drive reefer demand through the winter months.
Dry volumes finally picked up a little steam over the past week as the Van Outbound Tender Volume Index (VOTVI) increased by 1.13% w/w. Much like the reefer market, van volumes are underperforming year-ago levels, down 0.75% y/y. If the holiday retail season is as strong as expected, anticipate dry van volumes picking up rather quickly in the coming weeks.
A slight bump brings rejection rates back above 20%
The Outbound Tender Reject Index (OTRI), a measure of relative capacity in the market, has fallen over the past week, but started to rebound over the past couple of days. Over the past week, OTRI briefly dipped below 20% for the first time in over 400 days. OTRI is down 24 basis points (bps) w/w but is back above 20% again, signaling capacity in the market is still extremely tight.
During October, tender rejection rates fell into the seasonal pattern, falling throughout the month. Tender rejection rates fell by 162 bps during the month. Tender rejection rates remain well below year-ago levels, currently down over 550 bps y/y.
The likelihood of rejection rates reaching the 2020 levels is unlikely, even as peak season approaches due to the rapid increase in contract rates. Expect that rejection rates will remain depressed compared to last year, though there will likely be upward movement in rejection rates over the next two months.
As long as freight demand remains elevated, pressure on capacity is going to remain, especially since a surge of capacity isn’t going to enter the market throughout the next two months. OEMs continue to work through their own supply constraints and rapidly rising used equipment prices have created higher barriers to entry for individuals venturing out on their own.
Ultimately, the capacity situation may not get as bad as it was earlier in the year (rejections over 25%) but it is likely not going to improve as fast as shippers are hoping for.
While the rejection rate has fallen by 24 bps over the past week, the majority of the country experienced rejection rates fall last week. Of the 135 markets within SONAR, just 61 markets experienced rejection rates increase over the past week.
While volume levels picked up over the past week in Southern California, rejection rates were relatively unchanged in Ontario and Los Angeles. The upward pressure on freight rates over the past year has driven improved carrier compliance, especially in Southern California. Rejection rates in each of the markets are down by nearly 800 bps y/y.
In the Northeast, rejection rates have increased while freight volumes picked up over the past week. In Harrisburg, tender rejection rates increased by 41 bps w/w but remain more than 600 bps below 2020 levels. In Elizabeth, rejection rates increased by 190 bps w/w, but even with the increase, rejection rates are still 85 bps lower y/y.
In Dallas, rejection rates did increase this week, up 20 bps w/w, even though volume levels were down. That signals that accepted volume levels in the market were even lower w/w. Even with the increase over the past week, rejection rates are 340 bps lower than year-ago levels.
By mode: Reefer rejection rates have started to accelerate heading into the winter months. Over the past week, reefer rejection rates increased by 128 bps, the largest weekly change in more than a month. Reefer rejection rates are still way off the high of over 50% experienced earlier in the year but are currently sitting 540 bps below year-ago levels.
Dry van rejection rates pulled back by more than the overall rejection index. Over the past week, van rejection rates fell by 52 bps to 19.29%. The largest equipment type in SONAR has been the most stable for the past year but has dipped below 20% for the first time since February. Van rejection rates have fallen by nearly 500 bps since the beginning of September, but peak season should slow down the decline.
The flatbed market just keeps ratcheting tighter. Over the past week, flatbed tender rejections increased by 226 bps. The increases in rejection rates over the past several months bring flatbed rejection rates to nearly 2,000 bps higher than 2020 levels. The flatbed market was the last to tighten but has accelerated to surpass van rejection rates. Flatbed rejection rates are rapidly approaching the all-time high of 31.33% set in late May.
Ultimately, capacity is going to be difficult to secure throughout the final quarter, even though rejections are below 2020 levels. Add in that the September jobs report had the first decline in truck transportation employment numbers since January. The risk of capacity flooding the market seems relatively small, especially in the short term. The barriers of entry have become increasingly difficult with the rapid rise in used equipment prices, so shippers expecting conditions to ease significantly over the next three months are in for a tough reality on the capacity front.
Spot rates break three-week downward slide
The spot rate data available in SONAR from Truckstop.com is updated every Tuesday with the previous week’s data.
Last week, while rejection rates were down just 24 bps w/w, the spot rate was unchanged, breaking a three-week losing streak. Truckstop.com’s national spot rate, which includes fuel surcharge and other accessorials, was flat w/w, currently sitting at $3.43/mi. Spot rates are still 5% off the all-time high but will face upward pressure over the next two months.
Of the 102 lanes from Truckstop.com’s load board, 45 reported increases last week. Of the seven inbound Atlanta lanes, five of the lanes reported increases over the past week, with the largest mover being Indianapolis to Atlanta, which increased 8 cents per mile to $3.57/mi.
Even with the recent drawdown, the national spot rates continue to run over 20% higher y/y. Pressure will intensify for spot rates over the next couple of weeks as peak season kicks off.
Contract rates also pulled back over the past week, increasing by 1 cent per mile to $2.70. Dry van contract rates, which are reported on a two-week lag, are just 7 cents per mile off the all-time high set in mid-September.
Contract rates, which are just the base linehaul rate excluding fuel surcharges and other accessorials that are included in spot rates, have closed the gap with spot rates significantly over the past year. Contract rates are outperforming spot rates, continuing to run over 22% higher than in 2020.
Ultimately, upward pressure on freight rates is likely to remain in place for at least the next six months and beyond as supply chain constraints continue to be worked through.
Check out the newest episodes of our podcast, Great Quarter, Guys, here.
NOVEMBER 7-9, 2023 • CHATTANOOGA, TN • IN-PERSON EVENT
The second annual F3: Future of Freight Festival will be held in Chattanooga, “The Scenic City,” this November. F3 combines innovation and entertainment — featuring live demos, industry experts discussing freight market trends for 2024, afternoon networking events, and Grammy Award-winning musicians performing in the evenings amidst the cool Appalachian fall weather.