This week’s FreightWaves Pricing Power Index: 75 (Carriers)
Last week’s FreightWaves Pricing Power Index: 75 (Carriers)
Three-month FreightWaves Pricing Power Index Outlook: 65 (Carriers)
The FreightWaves 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:
The ‘quiet season’ has been anything but quiet as OTVI shines
Tender volumes have yet to slow down throughout a traditionally “quiet” first quarter, despite February reporting the highest rates of inflation since 1982. The Outbound Tender Volume Index (OTVI) remained unseasonably above 15,000 over the past week, sustained by import volumes and consumer demand.
OTVI increased by 1.6% over the past week, with the biggest gains occurring over the Super Bowl weekend as, on Sunday, the index posted its highest level since January. OTVI is now up 17.35% year-over-year (y/y), the widest the gap has been since July.
Despite record-setting inflation rates and the recent omicron surge, consumers have proven themselves willing and able to spend. The January jobs report was a welcome surprise, announcing that almost 1 million nonfarm jobs were taken up over the prior two months. Total retail sales were up by 13% y/y in January, with e-commerce, a large driver of demand over the past two years, up a more modest 8.4% y/y.
Accepted tender volumes over the past week outperformed OTVI as the Outbound Tender Reject Index (OTRI) continued to dip on a national level. Accepted tender volumes are 3.16% higher week-over-week (w/w) and up 4.52% month-over-month (m/m). Accepted tender volumes are up almost 20% on a y/y basis, albeit against weak comps from last year when rejection rates spiked during the Texas winter storm.
The rest of the country continues to experience the bounty of high tender volumes, with even some of the off-white markets showing gains. Of the 135 total markets, 59 posted weekly increases.
The seven largest freight markets in the country, including Ontario, California, Atlanta and Dallas, all reported weekly gains. Markets in the East Coast fared better than their West Coast counterparts, a possible side effect of dispersing winter storms and pent-up demand being unleashed. Allentown, Pennsylvania, the sixth-largest market in the country by outbound tender volume, reported a weekly increase of 5.8%, outperforming the national index by a considerable margin.
By mode: The Van Outbound Volume Index (VOTVI) was the key driver behind overall volume growth this week as it rose 2.68%. Van volumes are currently experiencing their highest growth on a y/y basis since July, with a yearly increase over 18%. If retail spending maintains its current velocity, expect to see van volumes rise accordingly.
On the other hand, the Reefer Outbound Tender Volume Index (ROTVI) did not perform quite so admirably as it fell 3.89% w/w. Given the current absence of any major winter storms, reefer volumes are depressed because shippers no longer need to shield their goods against inclement weather. As a result, reefer volume is exactly where it was last year with a 0% change. Produce season is just around the corner, however, and reefer units will be in high demand throughout.
Securing capacity is taxing despite favorable comps
Rejection rates are currently at their lowest level since July 2020, though it is still too early to break out the champagne. As it has for the past few months, OTRI continues to remain in the neighborhood of 20%, a far cry from the 5% it was two years ago
Over the past week, OTRI, which measures relative capacity in the market, fell under 18.9%, a decline of 86 basis points (bps) from the previous week. OTRI is currently 486 bps below year-ago levels; if OTRI remains stable in the coming weeks, comparisons on a y/y basis will become even more favorable, since the week beginning Feb. 15, 2021, saw rejection rates skyrocket over 27%.
Such favorable comparisons are soon likely to be made, as tender rejection rates are expected to continue along a gradual decline in the month ahead. A few caveats must be made, however: It is in the collective interest of carriers to keep rejection rates close to 20% as spot market prices rise in response, allowing contracts to be renegotiated at higher rates. The upcoming produce season will likely put further strains on capacity, since reefer units that were being used to transport dry goods will return to their intended function. Finally, while the week prior was spared drastic winter weather, snowstorms are expected to hit the Midwest and New England in the coming days. Even still, these factors are not expected to spike OTRI close to 30%, as happened last year.
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. As capacity is generally finding freight, there are only a handful of blue markets, which are the markets to focus attention on.
Of the 135 markets, 76 reported higher rejection rates over the past week, though 22 of these markets experienced a w/w increase of 100 bps or less.
Houston, one of the biggest markets in the country by outbound volume and home to the Barbours Cut Terminal, saw rejections rise by 9.2% as tender volume increased by 2.5% w/w. On the whole, however, Texas fared well last week as rejections fell in Dallas, Fort Worth and the important cross-border markets of Laredo and McAllen.
Carriers have long since flocked to Ontario, the largest freight market in the country, and it seems as though many of them are still present. Over the past week, rejection rates fell by 84 bps to 7.12%, the lowest level since May 2020.
By mode: Showing its volatility yet again, the flatbed market overtook reefer as the tightest of the equipment types within SONAR over the weekend. Over the past week, flatbed rejection rates rose by 466 bps to 37.05%. This latest increase puts the current Flatbed Outbound Tender Reject Index (FOTRI) higher than 2,300 bps over year-ago levels.
The reefer market finally offered some relief with consecutive declines in the Reefer Outbound Tender Reject Index (ROTRI) every day this past week. Given that reefer tender volumes were down this week, it is perhaps unsurprising that carriers were willing to make good on their loads. Currently, the ROTRI stands at 33.22%, 316 bps lower than last week and more than 1200 bps below year-ago levels.
The van market remained rock solid throughout the week as the Van Outbound Tender Reject Index (VOTRI) changed only by single-digit bps in the last few days. At present, VOTRI sits at 18.14%, which is 65 bps lower than last week and more than 780 bps below last year.
Carrier optionality keeps spot rates near record highs despite easing capacity
The spot rate data available in SONAR from Truckstop.com is updated every Tuesday with the previous week’s data.
Given that VOTRI (a key correlate with national spot rates) held firm at nearly 18% this past week, it is little wonder that spot rates followed suit and trended downward. Following last week’s upward reversal, Truckstop.com’s national average spot rate continued to decline after reaching its all-time high in early January. The national spot rate, which includes fuel surcharges and other accessorials, fell 5 cents per mile w/w and now sits at $3.73/mi — still only 10 cents/mi under January’s record.
Of the 102 lanes reported by Truckstop.com’s load board, only 33 reported increases over the past week. As industrial production picks up in the Midwest amid a sea of demand for durable goods, rates within the region fell. Rates coming out of Louisville, Kentucky, which is home to major manufacturing plants by Ford and GE Appliances, experienced the most drastic fall, with the Louisville-Chicago lane falling 38 cents/mi to $3.71/mi.
Contract rates increased once again over the past week, now only 1 cent per mile below the all-time high set in mid-January. Unfortunately, since contract rates are reported on a two-week delay, it is likely that the recent fall of tender rejections was gained at the cost of rising contract rates.
Contract rates, which are the base linehaul rate excluding fuel surcharges and other accessorials that are included in spot rates, rose by 13 cents/mi to $2.88. As shippers have offered more money for contracted lanes in the hopes of incentivizing carrier compliance, contract rates are more than 25% higher than they were a year ago.
FreightWaves’ Trusted Rate Assessment Consortium (TRAC) spot rate from Los Angeles to Dallas dropped even lower this week as carriers continue to linger in Southern California. The rate fell an additional 10 cents per mile this past week to $3.33/mi. The fact that rates along this lane were above $4/mi a little more than a month ago might feel like a distant memory, and it is expected to remain distant given the rate’s precipitous decline. Smart carriers will continue to jostle closer to Southern California as produce season picks up.
After a brief dip early in the week, the Freightwaves TRAC spot rate from Atlanta to Philadelphia clawed back its losses and then some, even as capacity conditions in Atlanta eased. The rate from Atlanta to Philadelphia currently stands at $3.92 per mile, up 9 cents/mi from the dip on Saturday and up 4 cents/mi from last week. Like the LA-Dallas lane, rates were above $4/mi a little more than a month ago; unlike LA-Dallas, however, there is a real possibility that rates will return to those highs soon.
Ultimately, capacity conditions should continue to ease, which should help moderate spot rates moving Nationwide, capacity conditions should continue to ease slightly, especially for goods shipped via dry vans. The upcoming produce season will stir the pot, but shippers have shown preparedness in frontloading their freight during the quiet season so as not to clamor for capacity in a noisy Q2. Whether carriers will be as quick to meet regional demand, particularly in the Texas and Florida markets, remains to be seen. Higher rates for reefers will drive up rates for vans as well, since reefers can effectively function as either mode if needed. In short, rate pressures will not make themselves absent anytime soon.