This week’s DHL Supply Chain Pricing Power Index: 75 (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 starting to turn higher ahead of the traditional peak season
The Outbound Tender Volume Index (OTVI), shippers’ requests for capacity, has started to stabilize and has broken the downward trend established over the past couple of weeks. After stabilizing for the better part of the past week, volumes turned up on Thursday, climbing over 1% on Thursday alone.
The fourth quarter is traditionally soft at the beginning before showing strength into the retail peak season. Consumer strength has been a primary driver of freight demand for the better part of the past year. Retail sales numbers were a surprise in September, rising 0.7% and beating expectations of a 0.2% decline.
According to Bank of America, total card spending continues to run up over 15% year-over-year (y/y) and nearly 20% above 2019 levels, signaling that the consumer is quite strong. One of the highlights has been the rise in spending on clothing, which is 23% higher y/y and 25% higher than 2019 levels.
The University of Michigan’s Consumer Sentiment Index did increase ever so slightly in September, but the number continues to be the lowest level in more than a decade. If there is a slowdown in consumer spending, freight demand may fall off, though shippers are attempting to restock inventories across the country.
An additional risk for freight volumes during the traditional peak season is the rise in gift cards. A survey conducted by Blackhawk Network, a global branded payments provider, found that 83% of consumers prefer gift cards over physical gifts this year. Nearly a quarter of respondents cited shipping delays and stockouts as concerns for opting for gift cards.
Even with the risks associated with truckload demand over the next couple of months, freight volumes are likely to continue to outperform 2020 levels. 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 jumped nearly 2% week-over-week (w/w), maintaining strength compared to last year, running up over 7% y/y.
Across the country, 72 of the 135 markets tracked by FreightWaves SONAR were lower over the past week. The smallest market in the country, Green River, Wyoming, experienced the largest increase in freight volumes over the past week as a snowstorm swept across the area. Overall, the increase in volume levels in the market is a mere blip on the radar but shows how winter weather can affect freight markets in the upcoming months.
The largest markets in the country have experienced an uptick in freight volumes over the past week. Elizabeth, New Jersey, which houses the Port of New York/New Jersey, experienced freight volumes grow by over 7% in the past week. The Port of New York/New Jersey has experienced an increase in imports as congestion has intensified in San Pedro Bay in Southern California.
Interior markets, which had been lagging behind the markets with major ports, saw an uptick in freight volumes as well. Volumes in both Chicago and Dallas rose by nearly 4% in the past week. Volumes in Dallas continue to outperform 2020 levels, now running up over 21% y/y.
BNSF has opened an intermodal terminal outside of the Memphis, Tennessee, market in an effort to ease congestion in both Chicago and Dallas. The result has led to increases in outbound truckload volume from the Memphis market. Over the past week, freight volumes increased by 3.6% w/w alone.
By mode: Reefer tender volumes, as represented by the Reefer Outbound Tender Volume Index (ROTVI), continued to fall over the past week. ROTVI pulled back by nearly 3% w/w, the largest weekly decline in nearly a month. ROTVI continues to underperform on a year-over-year basis, currently down more than 10% y/y.
Conversely, dry van volumes really picked up steam this week, rising 2.4% w/w. Dry van volumes increased 1.15% on Thursday alone. Dry van volumes are closer to 2020 levels than the reefer market, running down just 1% y/y. The recent uptick in dry van volumes is a positive for the overall freight market heading into the peak season.
Rejection rates slowing downward slide
The Outbound Tender Reject Index (OTRI), a measure of relative capacity in the market, has been trending sideways for more than a week now. Over the past week, OTRI fell by 23 basis points (bps) to 20.69%.
While freight volumes have started to pick up in a seasonal trend, rejection rates continue to fall in a seasonal trend as well. Rejection rates traditionally start rising after freight volumes do. The decline overall in rejection rates started in February after the winter storm caused capacity to tighten rapidly.
The slowdown in rejection rates signals that the overall capacity situation has improved but is still quite difficult for shippers. Contract rates have already been repriced ~25% higher y/y, which is aiding the improved carrier compliance. Even with higher rates, large truckload carriers expect that rates will continue to climb in 2022 as capacity constraints will remain in place.
The concerns for the market softening any considerable amount will likely be driven from freight demand as opposed to capacity flooding the market. Class 8 production did ramp up in August, jumping more than 60% m/m, but OEMs continue to work through their own set of supply chain constraints, limiting production as a whole.
As the overall Outbound Tender Reject Index was down just 23 bps w/w, more than half of the markets within SONAR tightened over the past week. Out of the 135 markets within SONAR, 74 markets experienced increases in rejection rates w/w.
The markets that experienced the biggest jump in tender rejection rates over the past week are some of the smallest freight markets within the country. Based on the overall volume levels in these markets, rejection rates are quite volatile, causing rapid tightening and loosening of relative capacity. Additionally, winter weather swept through the area, which aids in driving rejection rates higher in affected markets.
The largest markets in the country muted changes in rejection rates over the past week, especially in Southern California. The two large Southern California markets, Ontario and Los Angeles, were unchanged over the past week, still hanging around the 17% mark.
The markets that experienced strong upticks in freight volumes over the past week also experienced relative capacity loosen. Rejection rates fell by 411 bps w/w in Elizabeth, signaling that true volume flowing out of the market is picking up strength. Additionally, Dallas and Chicago had rejection rates fall by 257 bps and 214 bps over the past week, respectively.
By mode: Reefer rejection rates started to pick up over the past week. The Reefer Outbound Tender Reject Index (ROTRI) increased by 56 bps over the past week to 37.78%. Even with the recent uptick, reefer rejection rates are still nearly 600 bps lower than they were a year ago.
Dry van rejection rates pulled back similarly to the overall rejection index. Over the past week, van rejection rates fell by 24 bps to 20.33%. The largest equipment type in SONAR has been the most stable for the past year. However, as intermodal peak season passes and truckload demand increases, expect that pressure on the dry van market will force rejection rates higher, even though contract rates have increased by over 25% y/y.
The flatbed market has tightened the most of any equipment type over the past week. The flatbed market lagged behind the other two equipment types but came alive at the end of the first quarter. Over the past week, flatbed rejection rates increased by 110 bps to 25.72%. Since flatbed lagged behind the other two equipment types, flatbed rejection rates are more than 1,500 bps higher than year-ago levels.
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.
Freight rates follow volume and rejection trend in most recent week
The spot rate data available in SONAR from Truckstop.com is updated every Tuesday with the previous week’s data.
Truckstop.com’s national spot rate, which includes fuel surcharge and other accessorials, fell by another 3 cents per mile over the past week to $3.45/mi. The pullback in spot rates was the equivalent to last week’s increase. Of the 102 lanes from Truckstop.com’s load board, 41 reported increases last week, with outbound Los Angeles increasing again.
The LA-to-Dallas lane, which is the largest of the lanes out of Los Angeles, set a new all-time high this week, climbing 3 cents per mile to $3.65/mi. Only the LA-to-Phoenix and LA-to-Seattle lanes were lower this week.
The national spot rate finally joined both tender volumes and rejection rates, pulling back last week. The national spot rate is still well above last year’s level, running up 19% y/y.
Dry van contract rates did reverse in the most recent week, increasing by 1 cent per mile to $2.71. Dry van contract rates, which are reported on a two-week lag, are off the all-time high set in mid-September. Expect that contract rates will see a slight upward move in the next week, following the move spot rates experienced two weeks ago.
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 continue to run up 24% y/y and likely face more upward pressure heading into 2022.
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.
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