Tender rejections reclaim their all-time high

While volumes are notching record levels and capacity is as tight as it’s ever been, there is little volatility at the moment. The Outbound Tender Volume Index (OTVI) has been above 15,000 since the middle of August, and the accepted tender volume index value has run between up 16%-20% year-over-year for many weeks. 

There have been some regional shifts in volume. For instance, over the past 30 days many of the markets in the Midwest have gained market share. But on a national level, supply chains are healthy, albeit with higher transportation costs. The record imports into Los Angeles lend confidence that shippers believe the consumer rally will continue. However, tepid new ship orders for 2021 suggest confidence has not been fully restored. Both the University of Michigan and the Conference Board’s surveys of consumer households posted pandemic highs in September, which bodes well for trucking volumes moving forward. 

Some worry that the lack of another round of stimulus will derail the holiday momentum, but these fears are misplaced in our view. Consumer card spending data that we track closely on a weekly basis suggests no discernable falloff in consumer spending overall (and only slightly in the lower income cohort) after the expiration of the enhanced unemployed benefits in August. Therefore, it is likely that the holiday season in 2020 will see year-over-year growth in spending even without further stimulus, while the potential passage of any further stimulus post-election would simply lead to a major acceleration in our view. Consumers have proved willing to fill service-spending gaps with additional goods spending, and there does not appear to be any reason for this trend to reverse. 

On a positive note, nine of the 15 major freight markets that we monitor as a broad, representative benchmark were positive on a week-over-week basis. This ratio did deteriorate slightly from stronger levels in recent weeks but has been consistently high for months as the freight market rallies. The markets with the largest gains this week in OTVI.USA were Laredo, Texas (9.23%), Cleveland (7.04%) and Dallas (6.73%). The markets with the largest declines this week in OTVI.USA were Miami (-9.19%), Ontario, California (-5.27%), and Seattle (-4.30%).

SONAR: OTVI.USA

Tender rejections remain elevated

The Outbound Tender Reject Index (OTRI) has been roughly at or above 25% for five consecutive weeks. This is far and away the longest time it has been above 25% in the three-year series history.

Logistics providers are feeling the challenges brought on in this tight environment. A September supply chain survey shows transportation capacity has reached new lows. The Logistics Managers’ Index (LMI), a survey of leading logistics executives, showed capacity fell to new lows, dipping another 770 basis points during the month to a 23.8% reading. 

The lack of available capacity was also “reflected in the premium firms are paying.” The transportation pricing subindex of the LMI increased 410 basis points in the month to 87.9%, the highest reading since October 2018. “Observing the last two years of transportation prices shows a U-shaped trend, with September’s rate of growth representing a return to the heady days of mid-to-late 2018,” the report stated. 

Carriers have been rejecting roughly one in four loads since mid-August, and that number is trending higher for the shippers. As we have noted in recent weeks, rationality would dictate an eventual natural ceiling for the index somewhere in the neighborhood of 25%-30% as shippers are forced to agree to higher contractual rates (thereby alleviating future rejections). This phenomenon has not yet transpired, though it should increasingly come into play as bid season approaches. The next few weeks should go a long way toward aiding in the discovery of a true ceiling as the prolonged peak season kicks into gear. Could tender rejections trend in the direction of carriers rejecting one in three loads? Time will tell. 

SONAR: OTRI.USA

For more information on the FreightWaves Freight Intel Group, please contact Kevin Hill at khill@www.freightwaves.com, Seth Holm at sholm@www.freightwaves.com or Andrew Cox at acox@www.freightwaves.com.

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