This week’s DHL Supply Chain Pricing Power Index: 80 (Carriers)
Last week’s DHL Supply Chain Pricing Power Index: 75 (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:
Load volumes: Absolute level positive for carriers, momentum neutral
The Outbound Tender Volume Index (OTVI) has picked up steam heading into Labor Day weekend, up 2.2% week-over-week. At 16,081, OTVI has been higher only once in its four-year history prior to Black Friday 2020.
However, in the previous times OTVI has eclipsed 16,000, carriers were rejecting a higher percentage of total tenders. FreightWaves’ OTVI includes some rejected tenders, so taking the rejection rate into account is key to understanding the true level of demand. Adjusting for rejected tenders, volumes have never been higher.
Accepted tender levels are more than 2% higher than a month ago, thanks to the back-to-school season that has been a typical driver of freight demand throughout August.
Absolute volume levels are holding up well against extremely difficult comps, running up 2% y/y. The problem is absolute volume levels don’t tell the whole story about what is going on in the truckload market. The rise in shorter lengths of haul are helping prop the overall volume index.
Excluding the shortest length of haul across the mileage band, outbound tender volumes are essentially flat y/y as city length of haul, or the final mile deliveries that are less than 100 miles are up a resounding 18% y/y. Even when adjusting for rejections on the less-than-100-mile moves, accepted volume levels are up 16% y/y.
When excluding volumes where the length of haul is less than 250 miles, absolute volume levels have turned negative y/y. Outbound volumes, excluding trips less than 250 miles, are down 3.4% y/y. These outbound volume levels have increased by 2% over the past month. At the same time, short haul volumes (100-250 miles) have increased by more than 5%.
While absolute requests for capacity continue to trend higher, the top 20 freight markets were a mixed bag over the past week. The two large Southern California markets, Ontario and Los Angeles, after weeks of overperforming, slowed over the past week. The pullback in tender volumes comes at the same time as relative capacity tightened in the markets, with accepted freight volumes taking a breather as congestion in San Pedro builds.
Volumes in the other two large port markets, Elizabeth, New Jersey, and Houston are also taking a breather. Elizabeth, home of the Port of New York/New Jersey, was affected by Hurricane Henri; though the port itself never closed, surrounding roads were closed due to flooding over the weekend.
Relative capacity in Houston is loosening rapidly as rejections have fallen 80 basis points (bps) over the past week. Relative capacity is the loosest it has been since the middle of March. The Inbound Ocean TEU Index (IOTI), which is based on ocean bookings departing within the next seven days, with the destination being the Port of Houston is expected to climb to the second highest level of 2021. Now all freight moving through the port will become truckload shipments out of Houston; the influx of freight destined for the port will help stabilize freight volumes out of the market.
We are closely monitoring Hurricane Ida’s impact on freight volumes. Check FreightWaves.com homepage for regular updates.
Tender rejections: Momentum for carriers slow though they maintain pricing power
The Outbound Tender Reject Index (OTRI) has found resistance at 22.5%. After climbing for the first 20 days of August, the upward momentum in rejection rates has slowed. Over the past week, OTRI is up 47 bps but has fallen by nearly 30 bps since Saturday. The rise in rejection rates over the previous three weeks led to Truckstop.com’s spot rate setting yet another new all-time high.
The length of haul that is tightening the fastest is already the tightest across the mileage band. Over the past week, tweener (450 to 800 mi) rejection rates have increased by over 200 bps, eclipsing 30% again. Long haul rejections are the slowest climbing across the mileage band, increasing just 26 bps over the past week.
Short haul rejection rates have slowed the increase as volumes have leveled off over the past several days. Short haul rejections have increased by 80 bps over the 12 days as volumes are flat, signaling that relative capacity in this segment of the mileage band is tightening as accepted tender levels fall.
Long haul (LOTRI) — loads moving over 800 miles.
Tweener (TOTRI) — loads moving 450 to 800 miles.
Midhaul (MOTRI) — loads moving 250 to 450 miles.
The Weighted Rejection Index (WRI), pictured above, uses the weekly change in tender rejections with the Outbound Tender Market Share (OTMS) to show markets where capacity is changing the fastest based on the relative size of the market. The WRI aids in removing volatility around rejection rates, especially in smaller volume markets.
Markets that are tightening the fastest based on the WRI include Memphis, Tennessee,, Harrisburg, Pennsylvania, and Grand Rapids, Michigan.
The rejection rate in Memphis is back over 32%, having increased by 372 bps over the past week as relative capacity in the market ratchets tighter. Both midhaul and tweener rejection rates 40% and 39%, respectively, are propping up the overall rejection rate in the market as tweener volumes are the strongest out of Memphis.
Harrisburg, which is the largest freight market that is experiencing rapid tightening of relative capacity as rejection rates have increased by 212 bps to 27.64%, the highest level since mid-April. Volumes levels have continued to grow out of the major Pennsylvania market, outpacing the growth in rejection rates, as more freight flows through the market.
Grand Rapids has experienced a surge in volume levels recently, even surpassing Detroit. The surge in volume levels has been offset by the rise in rejection rates, which have jumped over 700 bps in the past week. As relative capacity in the market tightens, spot market volatility increases, driving rates out of the market higher.
By mode: Reefer rejection rates have rebounded significantly since the beginning of August compared to the other equipment types, even with the higher base value entering the month. Since the beginning of August, reefer rejection rates have increased by 330 bps, reaching the highest level since July 6. As produce season winds down, reefer capacity constraints will remain in place, due to the demand for frozen turkeys ahead of Thanksgiving followed by winter weather.
Dry van rejection rates are some of the most stable across the equipment types. Van rejection rates have been range bound between 21.5% and 23.5% for the past month. Dry van relative capacity is looser than it was in 2020 as rejection rates are more than 300 bps lower than a year-ago, but van tender volumes are down over 2% at the same time. In the past week, dry van rejection rates increased by 65 bps.
Flatbed rejections lagged behind the other two, but as the industrial economy started to recover in the beginning of the year, rejections surged, surpassing dry van rejections by mid-May. After peaking around Memorial Day, flatbed rejection rates have hovered around the 25% mark until recently. Flatbed rejection rates have fallen back below 24% after posing a slight rebound to begin the month. Over the past week, flatbed rejection rates have fallen by 250 bps, the only of the equipment types within FreightWaves’ SONAR platform that experienced loosening of relative capacity over the past week.
Though relative capacity is looser than it was at this time last year, that doesn’t mean conditions are any easier for shippers. Contract rates are still failing to keep up with the market, leading to tough compliance conditions amid a freight boom. As congestion builds in the ports, the dependence on the truckload market is going to keep pressure on the capacity front. Additionally, the difficulty for carriers to take delivery of new equipment, thus limiting supply of used equipment and driving prices to all-time highs will keep a lid on capacity for a prolonged period.
Freight rates: Absolute level and momentum positive for carriers
The spot rate data available in SONAR from Truckstop.com is updated at a 10-day lag, so any impact from Hurricane Ida relief efforts won’t be visible for some time.
For the fourth consecutive week, the Truckstop.com national spot rate averages notched all-time highs. The dry van seven-day moving average reached $3.41 a mile, inclusive of fuel, in the week ending Aug. 8. The national reefer average rose 1 cent to $4.11 a mile, inclusive of fuel. Of the 100 spot market lane pairings available in SONAR, 60 were positive week-over-week.
Tender rejection rates have been volatile even in major freight hubs since the beginning of August. But volumes in the five biggest markets have consistently outpaced the national average. Carriers have worked to stabilize networks and renegotiate contracts over the past several months, and there has been a noticeable change in carrier compliance. Yet volumes continue to gush from major markets, sucking up surrounding capacity. The downward pressure on rejection rates hasn’t translated into lower spot rates to this point. With peak season just weeks away, there doesn’t seem to be any lull in the cards between now and then.
Now, the market is facing another major headwind (absolutely zero pun intended). This market has been likened to a walk across a tightrope without a safety net. Small disruptions have an outsized, lasting impact and take time to work through. Just as we enter the beginning of peak season, a major hurricane is poised to suck capacity out of the south.
Whether relief efforts can prop up the national average is to be determined, but one thing’s for sure: FEMA will have to pay the piper to get capacity this year. As FreightWaves CEO Craig Fuller’s article Sunday explained, carriers have negotiated multiple rate increases with their shippers this year. With those increases came more defined expectations around volumes and order acceptance, and it will be harder for carriers to drop their clients in favor of relief loads. It may be FEMA that has the difficult time sourcing capacity.
But from the early looks of it, relief efforts will be big. Hurricane Ida has wreaked havoc on Louisiana and Mississippi and the destruction is still occurring. Stay tuned to FreightWaves for consistent updates on the storm’s impact on freight markets.
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