This week’s DHL Supply Chain Pricing Power Index: 70 (Carriers)
Last week’s DHL Supply Chain Pricing Power Index: 70 (Carriers)
Three-month DHL Supply Chain Pricing Power Index Outlook: 70 (Carriers)
The DHL Supply Chain Pricing Power Index uses the analytics and data in FreightWaves SONAR to analyze the market and estimate the negotiating power for rates between shippers and carriers. v
The Pricing Power Index is based on the following indicators:
Load volumes: Absolute levels positive for carriers, momentum neutral
The Outbound Tender Volume Index (OTVI) slid a few hundred points this week to 15, 049. Volumes are pumping across the country, but it seems routing guides have finally shown signs of improvement. Pair the declining electronic tenders with declining tender rejections, fewer spot volumes, and both contract and spot rates headed lower, the picture of an improving environment can be visualized.
Declining tender volumes this week may also be a function of the Commercial Vehicle Safety Alliance’s 72-hour safety blitz, a time when many drivers take off and shippers respond accordingly by pushing or pulling freight away from this week.
Reefer volumes have been tumbling since the index’s all-time high in early March, post-winter vortex. Since the first week of March, ROTVI.USA is down 24% and is currently at its lowest point since mid-February. The decline in dry van volumes over the same period has been less drastic, with VOTVI.USA shedding 6% since mid-March.
Dry van volumes, driven by consumer demand, remain extremely strong, and the decline this week is more of a combination of Roadcheck Week and routing guide fortification, rather than lower demand. This is evidenced by materially lower spot market volumes in the SONAR data provided by Truckstop.com and anecdotally supported by earnings reports such as ArcBest, which this week announced its seeing double-digit declines in spot volumes flowing through its network.
Although there are improvements over the road, bottlenecks and disruptions from the oceans will soon impact freight networks once again. The Global Port Tracker from Hackett Associates and the National Retail Federation has revised its already record-high import volume estimates over the next quarter. The freight will keep coming, and it will be fun to watch if carriers’ can keep on keeping up.
Tender rejections: Absolute levels positive for carriers, momentum positive for shippers
Carriers are rejecting fewer loads than they were at the beginning of the quarter, but the national average remains just under 25%. It is clear that carriers have made progress over the past six weeks, with each of the trailer types rejection rates falling considerably. Relative reefer capacity has loosened greatly since the polar vortex surged demand for temperature- controlled freight. After topping out above 50% in the first week of March, ROTRI has steadily declined to 40% currently.
Nearly every market west of Utah saw relative capacity loosen this week, including the freight-heavy southern California markets. The southeastern markets, including Savannah, Georgia, Atlanta, and Carolina markets also saw tender rejections fall this week.
When viewing the MAPS function in SONAR, it seems carrier networks shifted toward the coast this week, with many coastal markets, especially large port cities, seeing capacity relatively loosen over the past week. There is an influx of ocean freight volumes that will be entering truckload networks over the next several months from nearly every port in the country. Carriers that are prioritizing the coasts are setting themselves up for reliable volumes for the foreseeable future.
Despite OTRI falling meaningfully for the first time in weeks, I don’t believe it’s due to capacity being added to the market. Rather, it’s because contract prices continue to be rebid up. This is evidenced by spot prices falling considerably over the past several weeks, while overall freight demand has not. Freight demand is not going to abate in the next few months, and there will not be any meaningful addition to fleet capacity in the meantime. This is a carriers’ market and will stay such throughout the summer.
Freight rates: Absolute level positive for carriers, momentum positive for shippers
Both contract and spot rates have peaked for this cycle-within-a-cycle that was induced by severe winter weather. From mid-February to early March, the Truckstop.com national dry van spot rate average popped ~10%, but has given back about half of that handle in the weeks since. As contract rates have been marked up towards spot, rejection rates, and subsequently spot rates, have slid meaningfully.
The Truckstop.com dry van average did break a streak of consecutive down weeks, rising 1 cent per mile this week to $3.05/mile, inclusive of fuel. Although rates have peaked, I don’t see any indications of strong downward pressure. Spot rates will remain elevated from a historical standpoint for several months, possibly several quarters. Amit Mehrotra of Deutsche Bank is one of the most bullish analysts in the transportation industry. He believes the elevated freight demand and a very strong pricing environment may last throughout 2022 and into 2023.
Economic stats: Momentum and absolute level neutral
Several economic releases this week are worth noting.
Weekly jobless claims were released Thursday and give us one of the best close-to-real-time indicators of the overall economy. This week, the data was excellent with initial claims tumbling below 500,000 for the first time amid the global pandemic. This is nearly 100,000 fewer than the previous week, and well below the 527,000 Dow Jones estimate.
While the jobs market still has a long way to go before it fully heals from the pandemic damage, improvement has accelerated in recent weeks as restrictions on activity continue to be lifted.
Initial jobless claims (weekly in 2020-21)
Turning to consumer spending, as measured by Bank of America weekly card (both debit and credit) spending data, total card spending (TCS) in the latest week grew 14% over 2019, which is a moderation from last week’s 20% growth rate, but in line with the average over the past three weeks.
The BofA team released its monthly data ahead of the Census Bureau’s report: Retail sales ex-autos fell 1.9% from March to April, seasonally adjusted.
There is substantial weekly volatility in the spending data, so it is helpful to further smooth the data and consider the 14 and 28-day moving averages which are currently running at 16.7% and 14.6%, respectively, for the 2-year growth rate. To put this into historical perspective, the average 2-year growth rate from 2012 to 2019 was 7.8%, which means the current pace is well above the historical trend.
The large disparity in growth rates between income levels is beginning to converge. Since early March, the outperformance has been decidedly amongst lower income households: Households earnings less than $50k are spending 23% more than 2019, while spending among high income earners ($125k+) is up 8.3%. The outperformance of low income spending is apparent across categories, including leisure such as travel, restaurants and entertainment and durable goods such as furniture and home improvement spending. BofA analysts expect a convergence ahead where higher income households accelerate spending and low income spending moderates.
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