SONAR sightings for May 2: Atlanta to Chicago, import/export update, more

Brokers: Spot rates in the Atlanta to Chicago lane appear to have stabilized following a gradual decline over the past three months. Given higher load volumes and lower spot rates, there is the chance to focus on increasing margins. However, be careful when bidding, as the high for the lane is $2.84 per mile and the lower limit is $2.40. With such a spread, consider developing a detailed routing guide to select carriers seeking a backhaul to Chicago rather than carriers in the Atlanta market that will seek higher outbound rates. 

Carriers: If exposed to spot market activity, focus on booking trucks from Atlanta in advance due to the greater competition for loads. If focused on contracted lanes, continue to prioritize service levels and tender compliance as customers will expect carriers to take most loads tendered now that rejection rates are below 10%. 

Shippers: Now that spot rates have leveled off for the time being, there is an opportunity to leverage both carriers and brokers for lower rates due to the increased competition and greater capacity in the market. Outbound tender lead times fell in the past 30 days (from a high of 3.1 days on April 8 to 2.837) as shippers see less incentive to tender loads further in advance for greater savings. 

---

In the week ahead, we can once again expect COVID-related lockdowns in China to expand as it now becomes clear that the Chinese Communist Party is unwilling to ease its lockdown measures in a time frame that would assist in minimizing the impacts on the global supply chain. Every day the lockdowns persist, the ripple effects on the global economy quickly move closer to what could eventually become a series of tsunamis. Already, the impacts to Chinese domestic production are  evident in the recently reported PMI figures in China. Across manufacturing and services, these reported figures not only missed consensus expectations, but were also the lowest reported PMI numbers since the COVID lockdowns in early 2020. The primary difference in these numbers between now and then is that the rest of the global economy has lifted COVID restrictions almost entirely. This unique set of circumstances should not be dismissed or overlooked, and it would be wise not to simply view this set of lockdowns in reference to some of the previous lockdowns. While many hope that the current measures will simply materialize in another freight surge (or freight bull market) once China lifts the lockdowns and restrictions, that is not guaranteed. No one knows exactly how long these will last, nor how many pent-up orders in China are waiting to be manufactured and shipped to the U.S. and the rest of the world. 

Just imagine you are in a shipper’s shoes, and you are tasked with getting your company’s products manufactured and shipped as soon as possible to meet existing orders/demand. Your factories or suppliers in China are no longer able to meet your deadlines or produce your product with any sort of guaranteed lead time. So, you can either choose to wait (and tell your customers they’re out of luck or will have to wait an additional, unknown number of months) or source from wherever you possibly can. If enough companies that were sourcing from China choose to do business in another country, that does not guarantee that once these lockdowns are lifted China will begin fulfilling these orders again. In addition, we have already entered into a freight recession in the U.S. and are now teetering on the verge of a global freight recession. Spot rates have remained elevated on some lanes, some ocean carriers have raised guidance in their public filings, and some continue to evangelize the narrative that volumes are strong and will persist through at least 2022. However, remember that nine ocean carriers control over 90% of container capacity across three primary alliances. This consolidated control over capacity, coupled with a lack of transparency/data into supply and demand in real time, provides them tremendous pricing power with little accountability (when providing volume/demand projections).

---

Lane to watch: Columbus, Ohio, to Harrisburg, Pennsylvania

Overview: Spot rates take another stair step downward. 

Highlights:

• Spot rates fell nearly 20 cents per mile (4%) in this lane last week, indicating the northern tier rates still have plenty of room to fall. 
• Columbus’ outbound rejection rates have fallen from 11.7% on April 18 to 8.4% this weekend, with rejection rates to Harrisburg moving similarly but at a higher level. 
• Harrisburg’s outbound rejection rates have dropped from 11.5% on April 26 to 9.35% this weekend. 

What does this mean for you?

Brokers: Continue to expect easing conditions in this lane, even though it is an unfavorable direction. Although rejection rates have fallen significantly, we have not found a floor. Look for rates below $1,500. 

Carriers: Take what you can get on the contract side. The spot market is drying up quickly, but contracted volumes have found a floor for the moment. Accepting loads moving between high-volume markets is a solid strategy.  

Shippers: Expect continued improvement in compliance in this lane. Acceptances should be above 90% at this point as long as your contracted rates are not too far below the market, which is currently below $4 per mile. 

---

Outbound tender volumes have rebounded from a low of 12,000 bps on April 21 to 12,783 bps in the past eight days. While this is a promising sign for load volumes, the outbound tender rejection index continued to post declines, falling from 10.5% down to 8.82% during that same eight-day period. Declining spot rates continue to place pressure on smaller trucking companies that are heavily exposed to the spot market. Larger trucking companies are more insulated, as their contract rates are set in place for longer periods of time, allowing them greater flexibility when volumes and rates decline. Recent Q1 earnings from enterprise-level carriers indicate that while volatility may enter the market, they continued to post record revenue due to their negotiated contract rates. For smaller carriers, expect greater volatility on revenue per truck per week, as high fuel prices and declining spot rates continue to constrain margins. 

---

Lane to watch: Denver to Dallas

Overview: As the Headhaul Index surges over 21% w/w, it is likely that capacity will tighten.

Highlights:

• Denver outbound tender volumes are up 12% w/w, signaling that demand for capacity is increasing and likely putting upward pressure on spot rates.
• The Headhaul Index in Denver is up 21% w/w, signaling that capacity is likely to tighten as Denver becomes increasingly imbalanced between outbound and inbound volumes.
• Denver outbound tender rejections are up 224 bps w/w, signaling that capacity has likely already been tightening over the past week.

What does this mean for you?

Brokers: Outbound tender rejections in Denver are up 224 bps w/w, and that trend is likely to continue as outbound volumes rise 12% w/w alongside a 21% increase in the Headhaul Index. With a growing imbalance between inbound and outbound volumes, expect capacity to get tighter and put greater upward pressure on spot rates.

Carriers: The pricing power is very likely to shift further in your favor on outbound Denver lanes. With the Headhaul Index in Denver surging over 21% w/w alongside a 12% increase w/w in outbound volumes, Denver market conditions are signaling that there will likely be significant upward pressure on spot rates in the coming days. 

Shippers: Your shipper cohorts in Denver have tender lead times at 3.5 days, so it would appear that they have already been experiencing tightening conditions. While these lead times may be above the national average, historically shippers have pushed lead times closer to four days whenever market conditions are deteriorating. It would be wise to go ahead and get them into that range to help offset tightening conditions.