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: 75 (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.
The Pricing Power Index is based on the following indicators:
Waiting for the seasonal rise in freight demand
The Outbound Tender Volume Index, a measure of shippers’ requests for capacity, continues its sluggish November start. OTVI is currently at the lowest level, outside of holiday-affected weeks, since mid-May. Over the past week, tender volumes have fallen by 2.3% week-over-week (w/w).
November, especially the second week of the month, is traditionally a period that is quite strong for freight volumes. Currently, tender volumes are running down 1.65% month-over-month (m/m), a significant decrease, especially when looking back at 2020 levels. In 2020, by this point in November, tender volumes were up over 5% m/m and rising.
Even with the decline over the past month and a half, tender volumes are still at remarkably high levels. They have just come against extremely difficult comps. Tender volumes are currently running down 4.65% y/y, the widest the gap has been at any point in the past year. Compared to 2019 levels, tender volumes are still outperforming, currently up 58% on a two-year basis.
Adjusting OTVI, which includes both accepted and rejected tenders, by the tender rejection rates shows the true level of freight moving through networks. Accepted tender volumes are running down 2% w/w, but the gap with year-ago levels has narrowed. Accepted volumes continue to outperform but are now running just 3.45% above 2020 levels, down from the 8% last week. The comps have become increasingly difficult, but like in previous years, expect an uptick in freight volumes during the back half of November.
There are plenty of data points that suggest that a surge in truckload demand is coming, though it may not all be long-haul demand. U.S. Customs import shipments are currently running up 17.5% y/y, which signals that import demand is still remarkably strong. As retailers attempt to replenish inventories as well as ensure goods are on shelves for the holiday season, truckload demand will remain quite strong.
One of the primary beneficiaries of the elevated import demand has been intermodal providers, especially as the railroads have worked through their own set of congestion issues. Domestic intermodal volumes have picked up significantly over the past month, increasing on nine of the 11 densest domestic intermodal lanes. Intermodal peak season has traditionally passed by November, but shippers are relying heavily on intermodal moves ahead of retail peak season.
Across the country, volume levels in 59 of the 135 markets tracked by FreightWaves SONAR were higher over the past week. The largest 10 freight markets in the country took a significant breather over the past week.
The two large Southern California markets, Ontario and Los Angeles, took a step backward over the past week. Tender volumes in Los Angeles fell by 3%. Tender volumes are still deeply depressed compared to last year, down 16.6% y/y. In Ontario, freight volumes are still relatively volatile, falling 5.7% w/w.
Freight volumes in the Northeast vastly underperformed this week. Elizabeth, New Jersey, which has been an outperformer in recent weeks, fell 15.58% w/w after rising 14% last week. Harrisburg, Pennsylvania, the third-largest market in the country, fell by 5.8% w/w.
Freight markets in the center of the country did pick up over the past week. Tender volumes in Chicago grew by 2.9% w/w. Memphis, Tennessee, and Kansas City, Missouri, also experienced impressive growth, rising 4.2% w/w and 6.2% w/w, respectively.
By mode: It was another strong week in the temperature-controlled market as reefer volume continued to grow. Reefer volumes as measured by the Reefer Outbound Tender Volume Index (ROTVI) increased by 1.55% w/w. Even with the recent uptick, reefer volumes continue to run down by over 13% y/y, though winter weather and increased demand around the holiday season are going to drive reefer demand through the winter months.
Dry volumes did take a breather over the past week as the Van Outbound Tender Volume Index (VOTVI) decreased by 2.76% w/w. Much like the reefer market, van volumes are underperforming year-ago levels, down 5% y/y. If the holiday retail season is as strong as expected, anticipate dry van volumes picking up rather quickly in the coming weeks.
Rejection rates experience slight bump in the back half of the week
The Outbound Tender Reject Index (OTRI), a measure of relative capacity in the market, has increased over the past couple of days after hitting 19.25% on Tuesday. Even with the recent uptick in tender rejections, rejection rates are still down 28 basis points w/w.
Rejection rates haven’t experienced the uptick that occurred at the beginning of November last year. As a result, they continue to run down by 670 bps y/y. Over the past month, rejection rates have continued the downward trend that really started back in March. They are currently 130 bps lower than October levels but should pick up in the back half of November.
The capacity front is still quite difficult for shippers, even with the decrease in rejection rates. As contract rates have increased by more than 20% over the past year, carrier compliance has improved. But even with the improvement, rejection rates are more than 1,400 bps higher than 2019 levels and more than 900 bps higher than levels that would normally be considered inflationary for spot rates.
New capacity in the form of new Class 8 trucks isn’t likely to enter the market for a prolonged period as OEMs continue to be cautious, working through their own set of supply chain constraints. New Class 8 orders in October were down 12% from September levels and 39% y/y. Backlogs are now stretching well into the back half of 2022 and putting constraints on the used truck market as well. A used 3-year-old truck now costs over $95,000, an increase of 67% y/y.
As the national rejection rate continued to slide over the past week, the vast majority of the freight markets in the country experienced relative capacity loosening. Of the 135 markets within SONAR, 87 experienced rejection rate decreases the past week.
The map above shows the Weighted Rejection Index (WRI), the product of the Outbound Tender Reject Index — Weekly Change and Outbound Tender Market Share, as a way to prioritize rejection rate changes. A blue market is any market that is tightening faster, highlighting increased prices as well as markets that should take priority. Conversely, red markets are loosening faster relative to the size of the market, where shippers are gaining some pricing power.
The largest freight market that is loosening, relatively quickly compared to markets of similar size, is Elizabeth. Over the past week, rejection rates in Elizabeth fell by 131 bps w/w. The rejection rate in the market currently sits at 16.52%, the lowest since mid-August.
The other large freight markets — Ontario, Dallas, Atlanta and Chicago — experienced relatively muted changes. In Ontario, rejection rates fell by 31 bps w/w. In Atlanta, Chicago and Dallas, rejection rates increased by 55 bps w/w, 20 bps w/w and 19 bps w/w, respectively.
The biggest movers of the top 20 large freight markets were Memphis and Indianapolis. Relative capacity in Memphis tightened over the past week as rejection rates increased by 535 bps w/w, the third-largest increase of any market in the country. In Indianapolis, relative capacity loosened significantly as rejection rates fell by 246 bps w/w.
By mode: Reefer rejection rates have started to trend higher over the past three weeks. Over the past week, reefer rejection rates increased by 92 bps. Rates are still way off the high of over 50% experienced earlier in the year but are sitting 750 bps below year-ago levels. Expect that reefer capacity will remain tight over the coming months, as low temperatures across the country prop up reefer demand.
Dry van rejection rates restarted the downward decline this week. Over the past week, van rejection rates decreased by 62 basis points to 18.57%. The largest equipment type in SONAR has been the most stable for the past year, but VOTRI is now at the lowest level since late July 2020. The gradual decline in van rejection rates is consistent with the overall rejection index. Heading into peak season, expect to see relative capacity tighten in upcoming weeks.
The flatbed market has ratcheted tighter as rejection rates took a significant step higher over the past week. The Flatbed Outbound Tender Reject Index (FOTRI) increased by 236 bps over the past week. The smallest equipment type in the dataset was the last to experience that run-up in rejection rates, which is why even with the large pullback this week, flatbed rejection rates are still 1,600 bps higher than 2020 levels.
Ultimately, capacity is going to be difficult to secure throughout the final two months of the year, even though rejections are well below 2020 levels. The risk of capacity flooding the market seems relatively small, especially in the short term. The barriers to entry have become increasingly difficult with the rapid rise in used equipment prices, so shippers expecting conditions to ease significantly over the next three months are in for a tough reality on the capacity front.
Spot rates restart the downward slide
The spot rate data available in SONAR from Truckstop.com is updated every Tuesday with the previous week’s data.
In line with rejection rates restarting the downward slide, spot rates followed suit. Truckstop.com’s national spot rate, which includes fuel surcharge and other accessorials, fell by 2 cents per mile w/w, currently sitting at $3.41 a mile. Spot rates are still 5% off the all-time high but will face upward pressure over the next two months.
Of the 102 lanes from Truckstop.com’s load board, 35 reported increases last week. One of the densest lanes in the country, Los Angeles to Dallas, experienced another rate increase last week. The LAX-DAL rate jumped 7 cents per mile to $3.69/mi, a new all-time high, more than 25% higher than year-ago levels.
Even with the recent drawdown, the national spot rates continue to run over 20% higher y/y. Pressure will intensify for spot rates over the next couple of weeks as peak season kicks off.
Contract rates also pulled back over the past week, decreasing by 2 cents per mile to $2.68. Dry van contract rates, which are reported on a two-week lag, are just 9 cents per mile off the all-time high set in mid-September.
Contract rates, which are just the base linehaul rate excluding fuel surcharges and other accessorials that are included in spot rates, have closed the gap with spot rates significantly over the past year. Contract rates are outperforming spot rates, continuing to run 20% higher than in 2020.
FreightWaves released the Trusted Rate Assessment Consortium (TRAC) spot rates this week during the F3 Virtual Experience. The spot rates are the average buy rate derived from 3PLs’ and freight brokerages’ reported booked and covered dates. FreightWaves TRAC rates are updated daily and weighted based on proximity to a specific origin/destination with a maximum of 300 miles and length of time to the current date.
FreightWaves TRAC provides average all-in spot rates for more than 650,000 unique van lanes and over 300,000 unique reefer lanes. Additionally, FreightWaves TRAC provides a range, with the low rate representing the 33rd percentile and the high rate representing the 67th percentile. FreightWaves TRAC provides a confidence score between 1 and 5, with 5 being high confidence, based on the metadata to determine the rate.
The chart above is the FreightWaves TRAC rate from Los Angeles to Dallas, showing that the current rate is $4.05/mi with a confidence score of 5. This lane has a lot of volume moving from a tight radius, which leads to the high confidence score in the rate.
Ultimately, upward pressure on freight rates is likely to remain in place for at least the next six months and beyond as supply chain constraints continue to be worked through.
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