The volume picture remains bright for most of the logistics industry. Recent economic data, while lagging, is remarkably positive: Consumer confidence continued to climb in October, durable goods demand exceeded expectations in September and consumer spending notched a 1.9% growth rate in September. Even data out of the manufacturing sector exceeded expectations this week — the ISM manufacturing index came in at 59.3%, the highest value in two years.
The Outbound Tender Volume Index has flatlined at an extremely elevated level since Labor Day. On an accepted tender basis, volumes are running up 24% year-over-year — no change from last week.
The one potentially major headwind forming is what could be a canary in the coal mine in terms of the nascent brick-and-mortar spending decline in COVID hot spots. Whether this leads to a material decline in total consumption in these areas or spreads to other areas remains to be seen. In either case, this is a trend both shippers and carriers need to be monitoring closely as we move into the heart of peak and the holiday season.
When the COVID outbreak first hit U.S. shores in March, though freight volumes initially jumped due to panic-buying, there was a crash in consumer spending, freight and the economy in April. While consumption eventually shifted online and the freight market ultimately benefited greatly from that move, it took a few months.
However, aside from the risk of another major COVID outbreak wave, the necessary ingredients to keep the spot market strong through year-end appear to be in place: relatively tight capacity, strong volumes and positive cyclicality. The low inventory-to-sales ratio, strong consumer sentiment and spending, lack of service-based spending options, and acceleration of e-commerce growth all bolster the bull case for truckload.
On a positive note, 11 of the 15 major freight markets that we monitor as a broad, representative benchmark were positive on a week-over-week basis. This ratio strengthened this week back to the stronger levels it has become accustomed to in recent months as the freight market rallies. The markets with the largest gains this week in OTVI.USA were Savannah, Georgia (10.39%), Ontario, California (9.98%), and Laredo, Texas (6.88%). The markets with the largest declines this week in OTVI.USA were Houston (-14.55%), Miami (-12.01%) and Fresno, California (-2.4%).
Tender rejections remain elevated
Last week, the Passport Research team wrote that the week ahead would be a bellwether for the holiday season. The thesis was that if tender rejections took a leg up and we saw widespread rate pressure to the upside, peak season could be volatile. This appears to be coming to fruition as this week OTRI made a considerable move up and spot rates followed to a lesser degree.
The Outbound Tender Reject Index (OTRI) notched another all-time high of 27.26%. Not only is this a three-year series high, but it is trending higher. After a few weeks of decline off historically high levels, the West Coast markets began to tighten once again this week. On the heels of the last import surge prior to holiday shopping, rejection rates out of Los Angeles have turned back up this week.
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