Freight volumes averaged 4% higher in March than February with no significant spikes or craters, closing the month at approximately the same level as it started with the Outbound Tender Volume Index at 10,106, about 0.8% higher than on March 1st. The index value has since dropped approximately 3% since the end of March, which was not unexpected. Often shipping volumes take a dip in the first week of a new quarter due to surging volumes emptying warehouses and docks in the previous week. Quotas and budgetary goals have a regular impact on freight volumes.
From a year-over-year perspective, volumes are up 3.4% as national contracted freight volumes took a nosedive in the first week of April in 2018. For context, Easter fell on April 1st in 2018, which probably compounded the month/quarter-end impact.
The California markets are still the biggest reason for volumes showing a YOY increase. Los Angeles, San Diego, and San Francisco are all showing significant increases in volumes versus this same time last year. San Diego is showing volumes have more than doubled out of the market over early April in 2018. Given the market is historically much smaller representing 0.14% of the total national freight volume in April of 2018. Now it is larger, but still modest 0.37%, or the 80th largest outbound market in the U.S.
The current imbalance of freight in the market as compared to 2018 poses a decent threat to future freight market stability as carriers have flocked to the West Coast in order to service the freight. If the eastern half of the country starts to increase shipping volumes as they normally do in late spring, carriers may be out of position to deal with any rapid shift of market dynamic, where more freight originates east of the Mississippi.
Current national tender rejection rates continued to fall this past week, dropping 91 bps to 5.17% over the past seven days. The large drop is an indication that carriers are both increasingly happy with their contracted rates and have less options in the market. The fact volumes have been originating from the same places without any significant swings over the past seven to eight months has created the most stable freight market since early 2017.
The Atlanta market, the nation’s second largest outbound market, is currently showing some signs of destabilizing with outbound tender rejection rates climbing to 4.57%. On March 27th, just over a week ago tender rejection rates out of the southeastern hub were 3.32%. Volumes do not appear to be the main reason for the increasing rates, as they have been relatively flat over the past two weeks. Rejection rates surged to 5.37% at the end of February after spending most of the month below 4%. The relative sensitivity of the market might be a sign of things to come with so many carriers focused on the West.
One potential event that occurs around this time each year that could help alleviate the imbalance is the onset of produce movements off the West Coast to major eastern markets. Spot rates from Fresno to Atlanta reported by the U.S. Department of Agriculture started increasing this time last year. Currently the opposite is happening as the average rate fell $100 to $5,050 this week. Last year at this time the rate was 5,817 and climbing. The declining rates could be a result of the oversupplied market or an indication the produce shipments have not started in earnest yet.
April tends to be a slower month on average, but there is still a large potential for spot rates to begin to increase again, pending any shift in dynamic.