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Weekly Market Update 7.18.18


The freight market continues to stabilize after spiking in late June. It is normal for July to experience a period of cooling after shippers make the end of quarter push prior to the 4th of July holiday. Heightened consumer activity and construction fuel the economy in the summer months. July has not been too different from previous July’s characteristic market retraction, but there is one large market that is beginning to show signs of life post-holiday.  

The national tender rejection index (TRI), a proprietary index developed by FreightWaves that measures carriers’ willingness to accept loads at a contracted rate, has been steadily falling since a late June peak of almost 27% to where it currently sits at 21.1%. The TRI tells you the likelihood of carriers moving to the spot market for higher rates due to higher demand for equipment. When demand cycles lower, the TRI will drop.

FreightWaves writer John Paul Hampstead reported that despite indications that inbound container pricing was increasing, there was no significant evidence that volumes were creating capacity disruptions just yet. As of today, we are getting the first indication the increase in spot container rates as seen on the Freightos Baltic Exchange appear to be leading the freight market as prices surge prior to landing at the ports.

 Image: SONAR OTRI.LAX and TLT.LAX illustrating a 13.25% increase in tender rejection rate in a single day and 23.42% increase in tender lead time over the past 5 days in the outbound Los Angeles market.
Image: SONAR OTRI.LAX and TLT.LAX illustrating a 13.25% increase in tender rejection rate in a single day and 23.42% increase in tender lead time over the past 5 days in the outbound Los Angeles market.

The L.A. market is home to the two largest ports in the country by volume (Los Angeles and Long Beach), and serves as the origin for many cross-country freight movements that come from China via container. With the concern over tariff implementation many involved in transportation should be watching the ports for any significant changes.

Back in May we saw the first signs of market destabilization appear in the Los Angeles market behind a surge of inbound container rates. Tender rejections and subsequently rates increased throughout the country afterwards. Large markets like Los Angeles have the ability to impact capacity in the entire country as it did with the delayed produce season in 2017. All eyes should be on L.A. and points east–Dallas and Chicago–for any further disruptions.  

DAT reported a $.07/mile decrease in national dry van and reefer rates this past week, further indication carriers have been moving their capacity back to the contract market as demand has been waning. The revival of the L.A. market, depending on the length of the event, may be the beginning of a new wave of market destabilization this summer. As trucks enter the L.A. market to cover capacity shortfalls, other markets throughout the country will be more exposed to demand fluctuations. 

Tender rejections and rates are all near-term statistics, useful for day to day decisions. For the full picture and forecasting into the future, understanding how the freight markets are operating in relation to the larger economy is necessary. Understanding the natural ebb and flow of the economy gives a point of reference for how to react to short term market fluctuations. 

The US Census Bureau issued retail sales numbers for June earlier this week.  FreightWaves writer Chad Prevost reported retail sales increased 6.6% from a year ago, outpacing many economic forecasts. Retail sales is measured without adjustment for inflation. Because of this, retail sales year-over-year change is best measured in comparison to inflation, so you can gauge how quickly the economy is growing or contracting. 6.6% is well over current inflation, which is estimated to be around a healthy 2%.

The retail sector does not paint the entire picture, but it is a large part of the overall economy where the transportation sector derives much of its activity from. With macroeconomic indicators like retail sales and unemployment being positive, there is not much indication the overall economy and the long-term freight market is slowing down. Economic indicators tend to lag a little, but signals are strong enough that capacity is still a concern moving forward. The L.A. market seems to agree currently. 

For further market recap and analysis using the FreightWaves SONAR platform, click here for the latest market update.

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Zach Strickland, FW Market Expert & Market Analyst

Zach Strickland, the “Sultan of SONAR,” curates the weekly market update. Zach is also a one of FreightWaves’ Market Experts. With a degree in Finance, Strickland spent the early part of his career in banking before transitioning to transportation in various roles and segments, such as truckload and LTL. He has over 13 years of transportation experience, specializing in data, pricing, and analytics.