Weekly Market Update 7.31.18 – Freight markets still cooling but history says not for long

The national freight market continues to settle after its white-hot June. Isolated instances of capacity tightness are still present throughout the country, but the general movement is toward carriers’ willingness to accept loads. Tender rejection rates stalled for a few days around 20.5% before continuing to decline to 19.2% early this week. The question, as always, is how long the pattern will persist. Long term trend analysis suggests this is the norm for this time of year.

FreightWaves associate editor John Paul Hampstead wrote an article about the summer slump in freight and how freight brokers navigate the tricky summer landscape. He dissected the example of rates from Los Angeles to Dallas experiencing a bottom each year in early August.

In previous weekly market updates, we have discussed the July slump as part of a normal annual pattern as it relates to shipping volume and retail side demand. According to Gallup, July is the most popular month to take a summer vacation. 55% of those surveyed said they were planning on taking a summer vacation with 51% stating July was their preferred month. The idea is people are away from their jobs and consuming all the items they just produced and shipped.

In contrast to the general movement of declining load tender rates, the Chicago market is moving in the opposite direction. Chicago OTRI has only rose 100 bps in the last week, but the U.S. TRI has dropped 180 bps in the same time. Combining the two rate movements creates a more significant signal of a localized capacity imbalance.

Digging deeper into the Chicago market lane data, many of the destination markets are showing similar tender rejection patterns, with some noted discrepancies. The Chicago to Atlanta lane is decreasing after the initial bump, but Chicago to Dallas is increasing. More regional destination lanes like Milwaukee and Minneapolis correlate heavily with the general outbound Chicago rejection rates.

Some of the markets that were showing elevated levels of tender rejection rates last week have now cooled. Lubbock, a low volume market that spent most of the week with elevated rejection rates,  was as high as 33.56% last week and has now calmed to just over 20%. Lubbock followed a similar pattern as El Paso from the week prior.

Looking forward, history says we can expect increased activity in freight movements, as well as elevated rates in the spot market starting in the next couple of weeks. On the macroeconomic side, there have been some signs of slowing, but growth is still relatively strong. Housing starts, for instance, came in at a 13% decrease sequentially from May to June, but are still ahead of 2017 in terms of year-to-date numbers.

Real GDP growth was an incredible 4.1% growth in the 2nd quarter, which some economists consider a bit overheated. Economic growth that is too fast tends to cannibalize itself by inflating costs faster than wages.

Check out this week’s freight market update video using the SONAR platform here.