Both the Outbound Tender Volume Index (OTVI), representing the contract market, and the spot volume indices from Truckstop.com took legs up this week.
The holiday outlook for truckload and parcel demand is strong, driven by consumer spending that has been weighted heavily toward goods over services since the pandemic began. Peak season is underway and shippers’ requests for trucking capacity will likely continue to rise.
A host of recent economic data is bolstering our confidence in the outlook.
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 last week — the ISM manufacturing index came in at 59.3%, the highest value in two years.
After consolidating for most of September and October, national tender volumes rose again this week by 1%. On an accepted tender basis, volumes are now running up 30% year-over-year, up from 24% last week.
The one potential major headwind forming is a 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 others is yet to be seen. In either case, this is a trend both shippers and carriers should monitor closely as we move into the heart of the holiday season.
Source: Bank of America
In all, 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, the lack of service-based spending options, and acceleration of e-commerce growth are all supporting factors.
On a negative note, seven of the 15 major freight markets that we monitor as a broad, representative benchmark were positive on a week-over-week basis. This ratio weakened this week from 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 Miami (14.34%), Houston (10.71%) and Atlanta (5.87%). The markets with the largest declines this week in OTVI.USA were Cleveland (-8.36%), Indianapolis (-5.14%) and Los Angeles (-4.05%).
Tender rejections remain elevated but slip slightly
Tender rejections fell from an all-time high this week. After peaking over 27% for the first time, the Outbound Tender Reject Index fell by 94 basis points to 26.32%. This decline is marginal and nothing has fundamentally changed over the past few weeks in our view.
The markets all along the East Coast tightened this week, in part due to surging import volumes compared to previous weeks. Capacity loosened slightly across Western markets, while Midwestern and Southwestern markets saw significant drops in tender rejections.
At this point in the year, it is unlikely that enough incremental capacity will be added to the trucking industry to materially affect the market in 2020. However, if new truck orders keep up their current blistering pace, capacity could become more of an issue in 2021. While a record number of motor carrier authorities are being granted by the Federal Motor Carrier Safety Administration, many of these are likely company fleet drivers who have chosen to strike out on their own and leverage their earning power in a very hot market. The fact that enterprise carriers — from Schneider to Heartland Express and many more — are aggressively raising wages and sign-on bonuses for team and solo drivers suggest that the largest fleets are actually struggling to seat their trucks, much less grow their fleets.
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