This week’s FreightWaves Pricing Power Index: 70 (Carriers)
Last week’s FreightWaves Pricing Power Index: 70 (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:
OTVI still below year-ago levels, but accepted freight volume outperforms 2021
Tender volumes recover from last week’s lull, although the Outbound Tender Volume Index (OTVI) remains under year-ago levels. OTVI, which has been under 15,000 for the past two weeks, is roughly where it was at the beginning of February.
OTVI rose by 3.56% over the past week, rebounding somewhat after last week’s lull. Although OTVI is down 4.61% year-over-year (y/y), this comparison alone doesn’t tell the whole story. OTVI includes both accepted and rejected tenders, meaning that it can be inflated by artificially or organically high rejection rates. Last February saw a mixture of both, as inclement weather sapped capacity in Texas and the surrounding regions. Freight demand in February 2021, helped by booming e-commerce growth, led to a carrier’s paradise in which both spot rates and tender rejections spiked by 23% over the month.
Looking at accepted tender volumes, which is OTVI adjusted by the Outbound Tender Reject Index (OTRI), we see growth by 6.38% y/y and by 4% week-over-week (w/w). The freight market is quite healthy at present, despite rising diesel prices and inflationary pressures on the consumer.
One important determinant that could negatively impact future freight volume is the renegotiation of contracts between West Coast port operators and stevedores. The International Longshore and Warehouse Union, which represents dockworkers, will enter negotiations with strong leverage. Should the deal prove unsatisfying to either party before June 30, when the current contract expires, import volume from West Coast ports will be severely restricted and overall truckload volume will suffer accordingly.
Markets both large and small saw growth in tender volume this week. Of the 135 total markets, a staggering 90 reported weekly increases. Atlanta, which became the largest market in the country by outbound tender volume last week, posted a modest gain in volume by 1.3% w/w. Ontario, California, the previous titleholder, saw volume fall by 3.64% w/w as shippers diverted their imports to Eastern seaports such as Elizabeth, New Jersey.
Although not one of the largest drivers (so to speak) of freight, Detroit is nevertheless in the top 20% of markets by outbound volume, as tenders rose by nearly 46% w/w. In Tuesday’s State of the Union address, President Joe Biden praised Detroit automakers’ investments into the region as they pivot toward manufacturing electric vehicles. The ongoing semiconductor crisis, however, remains a persistent challenge for many manufacturers, automakers foremost among them.
By mode: After last week’s decline, the Reefer Outbound Volume Index (ROTVI) began to recover; it is now up 7.34% w/w. The reefer market is beginning to ripen as produce season kicks off in Florida, with its major markets posting weekly gains in OTVI between 7% and 30%. Though ROTVI is down 22% y/y, the foregoing discussion on accepted volume should be kept in mind, as accepted reefer tenders are up by over 9% y/y.
The Van Outbound Tender Volume Index (VOTVI) is slightly underperforming against OTVI overall, up by only 2.54% w/w. VOTVI is down 5% y/y but, as with reefer, accepted van volumes are up 5.5% y/y.
Rejection rates continue to slide, but likely not enough to satisfy shippers
OTRI maintained its gradual descent this week, sliding to its lowest level in almost 20 months. Nevertheless, rejection rates have yet to experience any drastic change as they still linger between 18% and 19%.
Over the past week, OTRI, which measures relative capacity in the market, dipped to 18.54%, a change of 34 basis points (bps) from the week prior. OTRI is now 861 bps below year-ago levels, though it is worth keeping in mind that March 2021 posted the second-highest OTRI value in a dataset that stretches back over four years.
As OEMs continue to struggle through backlogs, the capacity constraints are firmly in place. Even as capacity is being added to the market, it hasn’t been able to meet the needs of shippers facing continued heightened demand levels. Any truly significant loosening of capacity is going to be demand-driven. It remains to be seen when a slowdown in freight demand will amount to anything significant.
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, there are only a handful of blue markets, which are the ones to focus attention on.
Of the 135 markets, 69 reported higher rejection rates over the past week, though 32 of these posted only a slight w/w increase of 100 or fewer bps.
Recovering from last week’s formidable winter storms, capacity loosened in all of Texas’ major markets, as rejection rates were down in Dallas and Fort Worth by 153 bps and 269 bps, respectively.
Capacity did tighten a bit in the nation’s biggest markets, however. Five of the seven largest markets by outbound tender volume saw increased rejection rates, with OTRI in Elizabeth rising by 107 bps w/w to 17.2%.
By mode: Since overtaking reefer as the tightest equipment type in mid-February, flatbed rejections have continued their persistent climb. The Flatbed Outbound Tender Reject Index (FOTRI) surged to 42.78%, the highest level in the dataset. Given flatbed’s exposure to the industrial economy, upticks in FOTRI indicate that increased industrial activity, thus leading to higher monthly readings for industrial production.
After rejection rates fell under 19% in early February, the van market has yet to throw any curveballs. Currently, the Van Outbound Tender Reject Index (VOTRI) is at 18.12%, 43 bps below last week. Capacity in the reefer market, however, may be tightening as spring rolls in. Despite remaining below 30% most of the week, the Reefer Outbound Tender Reject Index (ROTRI) crept up 79 bps w/w to its present level of 30.6%.
Declining spot rates are a bright spot against tenaciously high contract rates
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, continued to drop as capacity loosened across the markets. The national spot rate, after reaching an all-time high of $3.83 per mile in early January, now sits at just $3.57 a mile, which includes fuel surcharges and other accessorials.
Of the 102 lanes from Truckstop.com’s load board, only 31 reported spot rate increases last week. Rates on lanes coming out of Chicago fell as freight volume grew, even though tender rejections in the region rose slightly.
At $2.91 a mile, contract rates set a record high in mid-February but have since declined to their new resting place. Contract rates, which are the base linehaul rate excluding fuel surcharges and other accessorials that are included in spot rates, fell by only 1 cent per mile w/w to $2.86.
FreightWaves’ Trusted Rate Assessment Consortium (TRAC) spot rate from Los Angeles to Dallas has yet to be slowed along its downward trend, leaving shippers and carriers wondering how low rates can fall. The rate fell a further 10 cents per mile this past week to $3.10. Though capacity has started to tighten in Los Angeles, changes in rates have yet to materialize. Rates along this dense lane returning to $4-plus per mile seems unlikely given the rapid deterioration, but they could face upward pressure if capacity continues to tighten in the Los Angeles area.
After a brief dip early in the week, the Freightwaves TRAC spot rate from Atlanta to Philadelphia clawed Although still well above rates in the last quarter of 2021, the FreightWaves TRAC spot rate from Atlanta to Philadelphia continued to descend this week as tender volumes rose in Atlanta. The rate from Atlanta to Philadelphia currently sits at $3.80 per mile, down 5 cents a mile from the previous week. Though gradually, capacity is beginning to tighten in Atlanta, so rates along this lane might level off in the near future.
The truckload market is showing ambiguous signs for its direction in the weeks to come. Factors against fNationwide, capacity conditions should remain stagnant, which could spur on a continued decline of spot rates moving forward. A key factor for freight volume will be decided by whether consumers will sustain their appetite for purchasing goods, or whether they will succumb to inflationary pressures. Nevertheless, produce season should provide upward pressure on both volume and carrier rates, though the extent to which both are affected remains an open question.