This week’s FreightWaves Supply Chain Pricing Power Index: 40 (Shippers)
Last week’s FreightWaves Supply Chain Pricing Power Index: 40 (Shippers)
Three-month FreightWaves Supply Chain Pricing Power Index Outlook: 40 (Shippers)
The FreightWaves 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.
This week’s Pricing Power Index is based on the following indicators:
Holiday causes tender volumes to move lower
After winter weather swept across much of the middle of the country, the Martin Luther King Jr. holiday proved to be an impactful holiday for freight volumes. The holiday, while not as impactful as other Monday holidays like Memorial and Labor Day, did cause a decent sized drop in volumes. As the final week of January is here, the first month of the year has been one of disruption, but the time of year is having a greater impact keeping tender volumes down year over year.
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The Outbound Tender Volume Index (OTVI), a measure of national freight demand that tracks shippers’ requests for trucking capacity, has completely erased the holiday noise and comparisons can now be formed. Over the past week, tender volumes have declined by 4.53%, but much of that decline is due to the holiday to start the week. With just a few days until the end of the month, it will be interesting to see if there is any uptick in tender volumes to close out the month, especially since there doesn’t appear to be a significant winter weather event on the horizon.
Lunar New Year is nearly two weeks earlier this year than last and the result is the uptick in ocean volumes started earlier as well. The question becomes, once those ocean volumes are stateside, does the truckload market benefit in any way or will the intermodal market see the upward volume momentum continue?
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Contract Load Accepted Volume (CLAV) is an index that measures accepted load volumes moving under contracted agreements. In short, it is similar to OTVI but without the rejected tenders. Looking at accepted tender volumes, the decrease was smaller than the overall OTVI as CLAV fell by 3.7% w/w, due to a drop in tender rejection rates.
Bank of America’s most recent card spending report, for the week ending Jan. 18, showed a recovery in spending as total card spending was up 5.6% year over year. The largest increases in the most recent week was transit that was up 14.3% and department store spending that was up 12.5% y/y. Bank of America did note that the timing of MLK Day created a boost for spending.
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Even with a slight decline in tender volumes at the national level, the majority of freight markets experienced volume declines over the past week. Of the 135 markets tracked within SONAR, 44 reported higher volumes over the past week, down from 83 last week.
The largest weekly increases continue to stem from the smaller freight markets, due to the influence that even a slight increase in tenders can have on these markets. The largest increases were in Grand Junction, Colorado and Billings, Montana, both extremely small freight markets with less than a tenth of one percent of overall truckload volumes.
Most of the large freight markets experienced tender volumes decline over the past week, but there was one exception. The Atlanta market experienced tender volumes increased over the past week, rising by 5.18%, though it is a factor of easier comps from the weather impacts a week prior.
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By mode: The dry van market has faced challenges over the past few weeks as disruptions have had a greater impact on the van market. The Van Outbound Tender Volume Index fell by 5% over the past week and was down 10.6% y/y. These declines are significant, but look to see if there is any improvement in February that could carry into March.
The reefer side of the market continues to hold up better than the van side of the market, though the holiday last week did cause a sizable drop in volumes. The Reefer Outbound Tender Volumes Index fell by 6.2% week over week and was down 5.71% y/y, but should rebound this week.
Tender rejection rates back below 7%
Tender rejection rates are still elevated compared to where they spent much of 2024, indicating that the market is in fact turning more in carriers favor. The question will be: when will the market flip firmly into the carriers favor and will it be driven by a demand catalyst or will it be steady with capacity continuing to exit the market until equilibrium is passed.
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Over the past week, the Outbound Tender Reject Index (OTRI) gave back some of the recent gains, falling by 83 basis points (bps) to 7.09%. Compared to this time last year, the OTRI is 179 bps higher y/y, an indication that the market is indeed tighter than it was last year, but is still a far cry from the levels experienced during the COVID-19 bull market.
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The map above shows the Outbound Tender Reject Index — Weekly Change for the 135 markets across the country. Markets shaded in blue are those where tender rejection rates have increased over the past week, whereas those in red and white have seen rejection rates decline. The bolder the color, the more significant the change.
Of the 135 markets, 38 reported higher rejection rates over the past week, down from the 56 that saw tender rejection rates rise in last week’s report.
The largest increases over the past week stem from fairly small freight markets like Rapid City, South Dakota and Billings, Montana. Charleston, South Carolina experienced rejection rates increase by 130 bps week-over-week (w/w) as the market dealt with unusual snow and ice. Carriers appear to be flooding back to the largest freight markets in the country as tender rejection rates in Ontario fell by 108 bps to 4.1%, in Dallas they fell by 139 bps to 7.31% and in Atlanta they fell by 41 bps to 6.76%.
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By mode: The dry van market witnessed tender rejection rates fall below 7% once again, but are still near Fourth of July levels, which is a positive sign entering the final week in January. The Van Outbound Tender Reject Index fell by 78 bps over the past week to 6.55%. Dry van rejection rates are 158 bps higher than they were this time last year.
The reefer market remains the tightest of the three equipment types though reefer tender rejection rates suffered the largest decline this week. The Reefer Outbound Tender Reject Index fell by 171 basis points over the past week to 15.28%, though it is 380 bps higher y/y.
The flatbed market was the only equipment type to experience tender rejection rates increase over the past week, a positive sign for a market that had been under pressure to start the year. The Flatbed Outbound Tender Reject Index increased by 161 bps over the past week to 11%, now up 175 bps y/y.
Spot and contract rates slide, still elevated compared to much of 2024
Spot rates are retreating off the recent highs fairly rapidly, but the declines shouldn’t be a surprise for two reasons: January and February are the slowest months of the year for freight (outside of holidays) and tender rejection rates have dropped from their recent highs.
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The National Truckload Index (NTI) – which includes fuel surcharge and various accessorials – decreased by 6 cents per mile over the past week to $2.33. The NTI is 2 cents per mile higher than it was this time last year, though the comps this week were around the same time severe winter weather impacted much of the country last year. The linehaul variant of the NTI (NTIL) – which excludes fuel surcharges and other accessorials – fell by 7 cents per mile over the past week to $1.88. The NTIL is now just 6 cents per mile higher than it was last year, the narrowest the gap has been in quite some time.
Initially reported dry van contract rates, which exclude fuel, have given back some of the recent gains in recent weeks. Rates are down 9 cents per mile over the past week to $2.37, though that is still on the high side of the range set throughout 2024. Compared to this time last year, the van contract rate is up 7 cents per mile, or 3%, which is about to be expected, especially as publicly-traded carriers are starting to report increased revenue per loaded mile on a sequential basis.
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The chart above, showing the spread between the NTIL and dry van contract rates, is trending back to pre-pandemic levels. Over the past week, the spread narrowed by 11 cents to minus 41 cents, which is in line with the 2019 average. Compared to this time last year, the spread is 12 cents per mile narrower than it was, another sign that the market is moving to a more carrier-friendly environment.
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The SONAR Trusted Rate Assessment Consortium (TRAC) spot rate from Los Angeles to Dallas suffered a fairly large slide over the past week, dipping below the contract rate once again. The TRAC rate from Los Angeles to Dallas decreased by 30 cents per mile to $2.31, a sign that capacity has quickly returned to one of the densest lanes in the country.
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From Chicago to Atlanta, spot rates have been volatile, finally moving above contract rates and to the highest level in the past six months. The TRAC rate for this lane increased over the past week by 19 cents per mile to $3.31. Spot rates are now 51 cents per mile higher than contract rates, which will lead to tighter conditions along this lane.
