Holiday impacts starting to hit truckload market

The Pricing Power Index is based on the following indicators:

Tender volumes down ever so slightly week-over-week

The Outbound Tender Volume Index (OTVI), measured by shippers’ requests for capacity, continues the sluggish quarter. While tender volumes briefly fell below the 15,000 mark, an uptick in tender volumes over the past couple of days has brought the index back above the aforementioned 15,000 mark. Tender volumes are just 0.13% lower than they were a week ago.

Even looking back before 2020, which has brought difficult comps to the market, seasonally tender volumes decline in the first half of November before growing during the week leading up to Thanksgiving and Black Friday. After the holiday, tender volumes traditionally decline throughout December from their peak through the first quarter of the year.

With that in mind, expect freight volumes to maintain elevated levels compared to the previous year, though the rise in tender volumes may not be as pronounced as it was in 2020, when tender volumes rose 5% leading into Thanksgiving. As it stands currently, tender volumes are down nearly 7% year-over-year (y/y) with much of this week’s increase coming from the fact that tender rejection rates have accelerated the growth.

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 down 1.2% w/w,  a larger move than the tender volume index. The underperformance this week is due to an increase in tender rejections over the past week. Accepted volumes continue the outperformance compared to a year ago, though the gap has now narrowed to just 3.8% y/y.

Consumer concerns are definitely a significant impact for the truckload market. The Consumer Price Index (CPI), a measure of inflation, rose by 0.9% m/m in October, bringing the 12-month rolling total to 6.2%, the highest since November 1990. In the food-at-home category, prices rose by 1% in October after a 1.2% increase in September, bringing the 12-month total to 5.4%. 

Ultimately, there has been an uptick in bookings recently, likely to avoid congestion around the Chinese New Year holiday, which will transition to domestic freight demand. So while tender volumes may not reach as high as they did in 2020, expect that there will be a prolonged period of tender volumes above those 2018 and 2019 levels.

Across the country, volume levels in 70 of the 135 markets tracked by FreightWaves SONAR were higher over the past week. The largest freight markets in the country took a breather over the past week, with the exception of the large Southern California markets.

The two large Southern California markets, Ontario and Los Angeles, took a significant step higher over the past week. Tender volumes in Los Angeles increased by 4.9%. Tender volumes are still deeply depressed compared to last year, down 12.4% y/y. In Ontario, freight volumes are still relatively volatile, rising 10.2% w/w, bringing tender volumes in the market up 0.4% y/y.

The Northeast, which has been an interesting region the past couple of weeks, was a mixed bag this week. Harrisburg, Pennsylvania, where volumes increased to begin the week, turned negative on a w/w basis, down 4.1%. In Elizabeth, New Jersey, volumes rebounded, growing by 5.7% w/w.

By mode: Momentum in reefer demand disappeared over the past week. Reefer volumes as measured by the Reefer Outbound Tender Volume Index (ROTVI) decreased by 4.73% w/w. Reefer volumes continue to run down by nearly 20% y/y, though winter weather and increased demand around the holiday season are going to drive reefer demand through the winter months. 

Dry van volumes did recover over the past week as the Van Outbound Tender Volume Index (VOTVI) increased by 0.71% w/w. Much like the reefer market, van volumes are underperforming year-ago levels, down 7% y/y. If the holiday retail season is as strong as expected, anticipate dry van volumes picking up rather quickly in the coming weeks.

Rejection rates pick up ahead of Thanksgiving week

The Outbound Tender Reject Index (OTRI), a measure of relative capacity in the market, has increased over the past week after hitting 19.25% on Nov. 9. OTRI is currently 88 basis points (bps) higher than a week ago.

The uptick in rejection rates may signal the beginning of the capacity crunch surrounding the peak truckload season. Traditionally, drivers tend to stay closer to home around the holiday season, which places upward momentum on rejection rates. With Thanksgiving and the retail peak season just a week away, expect that rejection rates continue this positive momentum through the next two weeks. 

The increase in rejection rates continues to show that the capacity conditions in the market are still quite difficult. Though the rejection rates are down 734 bps y/y, compared to 2019 levels, rejection rates are 1,481 bps higher. In a normal period, rejection rates between 7% and 10% put inflationary pressures on spot rates. The past 18 months have been anything but normal, so spot rates haven’t really been as tightly correlated with rejection rates, especially in the last quarter. 

New capacity in the form of new Class 8 trucks isn’t likely to enter the market for a prolonged period as OEMs continue to be cautious, working through their own set of supply chain constraints. New Class 8 orders in October were down 12% from September levels and 39% y/y. Backlogs are now stretching well into the back half of 2022 and putting constraints on the used truck market as well. A used 3-year-old truck now costs over $95,000, an increase of 67% y/y.

Ultimately, conditions are still difficult but have eased significantly over the past month or so as capacity has returned to the market. This trend will likely continue into 2022, but much like in 2021 an unforeseen catalyst could throw a wrench into the capacity front.

A wave of tightening relative capacity swept the country over the past week, which is normal ahead of the Thanksgiving holiday. Of the 135 markets within SONAR, 88 experienced rejection rate increases this week. 

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. A blue market is any market that is tightening faster, highlighting increased prices as well as markets that should take priority. Conversely, red markets are loosening faster relative to the size of the market, where shippers are gaining some pricing power.

In Southern California, capacity traditionally tightens earlier than in other markets as drivers tend to avoid the market ahead of holidays when trying to stay closer to home. In Ontario and Los Angeles, rejection rates increased 351 bps w/w, but anticipate the increase to continue throughout the next week. Rejection rates are still more than 580 bps below year-ago levels. 

Memphis, Tennessee, a market that has tightened significantly over the past month, has  finally seen the capacity situation ease this week. Over the past week, tender rejection rates in the market fell by 435 bps w/w, bringing the rejection rate to 28.49%, which is still significantly tighter than the overall market. Much like in Southern California, rejection rates continue to run nearly 600 bps below year-ago levels.

By mode: Reefer rejection rates have started to trend higher over the past three weeks. Over the past week, reefer rejection rates increased by 52 bps to 38.77%. Rates are still way off the high of over 50% experienced earlier in the year but are sitting 1,010 bps below year-ago levels. Expect that reefer capacity will remain tight over the coming months, as low temperatures across the country prop up reefer demand.

A rebound in dry van rejection rates kicked off during the past week. The Dry Van Outbound Tender Reject Index (VOTRI) rose by 94 bps over the past week to 19.52%.  The largest equipment type in SONAR has been the most stable for the past year, but the recent jump in rejection rates signals that tightening capacity. Peak season traditionally leads van rejection rates to climb as drivers come off the road as Thanksgiving is just a week away.

The flatbed market has ratcheted tighter as rejection rates took a significant step higher over the past week. The Flatbed Outbound Tender Reject Index (FOTRI) increased by 258 bps over the past week to 28.34%, just 85 bps off the year-to-date high set at the end of October. The smallest equipment type in the dataset was the last to experience that run-up in rejection rates, which is why even with the large pullback this week, flatbed rejection rates are still 1,600 bps higher than 2020 levels.

Peak season is about to put upward pressure on trucking rates

The spot rate data available in SONAR from Truckstop.com is updated every Tuesday with the previous week’s data.

Moving in an opposite direction than tender rejection rates, Truckstop.com’s national spot rate took another step lower last week. The national average spot rate fell by 3 cents per mile to $3.38/mi, including fuel and other accessorials. Spot rates are still up double digits compared to 2020 levels, now up ~16% y/y.

Of the 102 lanes from Truckstop.com’s load board, 43 reported increases last week. Outbound of Los Angeles took a step higher on six of the eight lanes, with the northbound lane of Los Angeles to Stockton increasing the most, rising 19 cents per mile to $4.15/mi. The increases out of Southern California are no surprise given capacity has really started to tighten ahead of peak season.

As Thanksgiving is rapidly approaching, now just six days away, upward pressure on spot rates will ensue as drivers come off the road. 

Contract rates also pulled back over the past week, decreasing by 3 cents per mile to $2.65. Dry van contract rates, which are reported on a two-week lag, are just 12 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 17% higher than in 2020.

FreightWaves released the Trusted Rate Assessment Consortium (TRAC) spot rates last week during the F3 Virtual Experience. The spot rates are the average buy rate derived from 3PLs’ and freight brokerages’ reported booked and covered dates. FreightWaves TRAC rates are updated daily and weighted based on proximity to a specific origin/destination with a maximum of 300 miles and length of time to the current date. 

FreightWaves TRAC provides average all-in spot rates for more than 650,000 unique van lanes and over 300,000 unique reefer lanes. Additionally, it provides a range, with the low rate representing the 33rd percentile and the high rate representing the 67th percentile. FreightWaves TRAC provides a confidence score between 1 and 5, with 5 being high confidence, based on the metadata to determine the rate.

The chart above is the FreightWaves TRAC rate from Los Angeles to Dallas, showing that the current rate is $4.11 a mile with a confidence score of 5. This lane has a lot of volume moving from a tight radius, which leads to the high confidence score in the rate. 

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.

For more information on the FreightWaves Freight Intel Group, please contact Kevin Hill at [email protected] or Tony Mulvey at [email protected].

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