The Outbound Tender Volume Index (OTVI) fell 1.7% this week to 13,817. We must adjust for the level of rejected tenders accounted for in OTVI to get a clearer look at year-over-year comparisons. On a rejection-adjusted basis, volumes are up 18% y/y, a slight deceleration from last week’s 21% growth rate.
Freight volumes have been trending sideways since the first week of January, bouncing between 13,600 and 14,200. This is typical for the month of January, when freight flows lull in the early weeks of the year. While this year is following a similar pattern, it is at an extraordinarily high level. If the pattern continues, we should expect to see volumes pick up speed toward the end of February.
From a geographic standpoint, many of the markets we highlighted strength in last week retreated this week. This includes port locations on the West Coast, the Southern port cities of Houston and New Orleans, and East Coast cities like Savannah, Georgia, and Elizabeth, New Jersey. Freight flows picked up in the Midwest and upper Midwest ahead of a winter storm currently encroaching.
Consumer spending data from Bank of America remained promising this week, although the pace has cooled. For the latest week (ending Jan. 30), consumer spending was up 5.3% yoy, almost identical to last week’s growth.
However, Bank of America did highlight that the boost to spending from stimulus checks is waning. Total card spending for the lowest income cohort has settled back down to in-line with the pre-stimulus spending range of up 10% y/y, a sharp decline from the peak of up 22% y/y the week of Jan. 10.
Last week, industrial production data for December was released and surprised to the upside. With consumers continuing to spend, an early-stage industrial recovery, a robust housing market and retailers with weeks (and possibly months) of inventory replenishment ahead, the foreseeable future for freight demand looks solid.
On a negative note, six 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 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 Chicago (4.15%), Fresno, California (4.02%), and Houston (3.93%). The markets with the largest drops this week in OTVI.USA were Laredo, Texas (-13.42%), Cleveland (-13.19%) and Newark, New Jersey (-10.74%).
Tender rejections reverse course and head higher
The Outbound Tender Reject Index (OTRI) appears to have bottomed in the past three weeks and actually moved back up this week for the first week since Christmas, though this was likely at least partially influenced by the snowstorm in the Northeast. OTRI descended from the all-time high on Christmas Day of about 28% to 22.43% currently, and the rate of decline has decelerated meaningfully over the past several weeks.
Carriers are rejecting freight at historically very high levels, but the market seems to be getting accustomed to it. Anecdotally, we’ve heard from our contacts at brokerages that capacity is not as hard to secure as it was in the back half of 2020, even with carriers rejecting nearly 1-in-4 contracted tenders.
There has not been an influx of new capacity added, nor a steep decline in demand. The past few weeks have seen lower rejection rates and in turn lower rates because shippers have improved routing guides by agreeing to higher contract pricing. As the spot-contract spread declines, so does the benefit of opportunistically rejecting contracted freight in favor of testing spot markets.
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