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Tender volumes slump as current contract rates find solid footing

This week’s FreightWaves Pricing Power Index: 70 (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:

OTVI slides below year-ago levels yet remain well above historical trends

Tender volumes finally fell over the past week, interrupting this year’s unexpectedly noisy first quarter. The Outbound Tender Volume Index (OTVI) slid under 15,000 early this week, returning to the levels of mid-January.

Tender volumes contract, sinking below year-ago levels
SONAR: OTVI.USA: 2021-22 (blue), 2020-21 (purple) and 2019-20 (green)
To learn more about FreightWaves SONAR, click here.

OTVI declined by 3.68% over the past week as, on Thursday, the index posted its lowest level since the week of the last national holiday, Martin Luther King Jr. Day. In 2021, vicious winter storms caused a seven-day dip before OTVI rebounded vigorously. That week of recovery, which occurred exactly one year ago, makes for a difficult comp as OTVI is down 8.12% year-over-year (y/y).

WTI crude oil prices (a benchmark for domestic oil production) neared $100 per barrel, as supply disruptions caused by the Russia-Ukraine conflict elevated global demand. Accordingly, the national average diesel price remains above $4 per gallon, its highest price point since early 2013. Rising diesel prices will soon be reflected in carrier rates, so shippers should expect a strained wallet if they need to move freight on the spot market.

Since the national Outbound Tender Reject Index (OTRI) remained stable over the past week, accepted tender volumes matched OTVI. Although down by 3.68% week-over-week (w/w) and by 1.11% on a monthly basis, accepted tender volumes are up 5.9% y/y even against the aforementioned difficult comps.

Volume levels are rising outside of the largest markets, with almost half posting weekly gains.
SONAR: Outbound Tender Volume Index – Weekly Change (OTVIW).
To learn more about FreightWaves SONAR,
click here.

Regionally, it was a strong volume week for many markets in the country, comprising a mixture of those both large and small. Of the 135 markets, 65 reported weekly increases. Tender volumes declined on the West Coast, especially in the important Ontario, California, market, likely due to shippers choosing to move their freight over the rails. 

Atlanta, now the largest market in the country by outbound tender volume, posted a modest gain in volume by 0.6% w/w. The Texan cross-border markets of Laredo and McAllen fared well, reporting weekly volume increases by 9.2% and 2.9%, respectively. As spring draws nearer, these markets will continue to see plenty of produce coming up from Mexico.

By mode: The Reefer Outbound Volume Index (ROTVI) suffered a sharp decline this week as it fell 9.73%. Sustained mild weather throughout the week enabled shippers to move goods outside of temperature-controlled units without fearing the risk of them freezing. As is the case with other modes, reefer volumes were impacted by rising diesel prices. Comparison of the ROTVI on a y/y basis is even less favorable, as the index dropped by almost 25%.

The Van Outbound Tender Volume Index (VOTVI), though depressed, was relatively stable throughout the week as it fell by 3.63%. Given that most freight in this season is not particularly time-sensitive, some shippers have instead opted to use the rails, attracted by improved intermodal network fluidity and comparatively cheaper rates. Despite VOTVI being down 8.4% y/y, retail spending remains resilient as consumers fail to flinch from inflationary pressures.

Though capacity is strained, rejection rates remain level

Rejection rates dipped to their lowest level in almost two years earlier in the week, though OTRI currently sits at the same level as it did a week prior. A new point of equilibrium is forming around 19%, though tender rejections are unlikely to remain as stable in the coming months.

Rejection rates hold steady under 19%, still greatly above two years prior
SONAR: OTRI.USA: 2021-22 (blue), 2020-21 (orange) and 2019-20 (green)
To learn more about FreightWaves SONAR, click here.

Over the past week, OTRI, which measures relative capacity in the market, remained at 18.88%, a change of zero basis points (bps) from the previous week. OTRI is currently 810 bps below year-ago levels, when the week beginning Feb. 22, 2021, opened with rejection rates at almost 28%.

An important test for the current stability of rejection rates will be faced in the weeks ahead, considering that import levels remain 20% higher y/y, leading to strong volume levels throughout the rest of the first quarter. When tender rejections skyrocketed to almost 30% in February 2021, they remained above 25% for over two months and did not fall permanently below that level until early July. Given the market’s fragile state, the risks of adverse weather as well as other outside factors could lead to another rapid rise in tender rejection rates.

Capacity tightens in Dallas/Fort Worth:
SONAR: WRI (color)
To learn more about FreightWaves SONAR, click here.

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, 69 reported higher rejection rates over the past week, though 24 of these markets posted only a slight w/w increase of 100 or fewer bps.

Dallas and Fort Worth were the biggest markets to experience tightened capacity this week, as winter storms drove ice and sleet into the region on Wednesday. Tender rejections rose by 2.4% in the two markets amid treacherous roads.

Savannah, Georgia, saw rejection rates fall by 3% w/w, while the Georgia Ports Authority reflected on plans to expand berth capacity and deepen the river channel for the city’s seaport. Among the GPA’s stated intentions was one to accommodate and grow the available trucking base in Savannah.

SONAR: VOTRI.USA (blue); ROTRI.USA (orange); FOTRI.USA (green)
To learn more about FreightWaves SONAR, click here.

By mode: This week, the flatbed market continued to hold the title over reefer as the tightest of the equipment types within SONAR. Over the course of the week, flatbed rejections rose by an additional 51 bps to 37.56%. This latest bump puts the Flatbed Outbound Tender Reject Index (FOTRI) almost 2,400 bps over year-ago levels.

Produce wholesalers and other shippers reliant on temperature-controlled units, however, have a bit more to celebrate. The Reefer Outbound Tender Reject Index (ROTRI) continued to fall, reaching its lowest level since August 2020. ROTRI now stands at 29.81%, 341 bps lower than last week and more than 1,700 bps below year-ago levels. Despite reaching a monthslong low on Tuesday, the Van Outbound Tender Reject Index (VOTRI) rose in the latter half of the week, up by 41 bps w/w at 18.55%. 

Contract rates find point of fixity near record-high levels

Contract rates are established, oscillating by only a few cents per mile.
SONAR: Dry van contract rate (blue).
To learn more about FreightWaves SONAR, click here.

Contract rates remained stable as shippers have found an agreeable price point with their carriers. Rates remain just 2 cents per mile under the all-time high set in mid-January. Nevertheless, this steep cost has paid for improvements in carrier compliance as rejection rates are well off their recent highs.

Contract rates, which are the base linehaul rate excluding fuel surcharges and other accessorials that are included in spot rates, fell by only 1 cent/mi to $2.87. Given the difficult period of adjustment for shippers over the past two years, contract rates are almost 25% higher than they were a year ago.

FreightWaves’ Trusted Rate Assessment Consortium (TRAC) spot rate from Los Angeles to Dallas remained in freefall as capacity lingers in Southern California, falling another 13 cents per mile to $3.20/mi. This lane has consistently seen weeks of consecutive decline since the beginning of 2022, when spot rates were more than $4/mi. Since rates have continued to slide even as capacity tightens in Dallas, there seems to be no foreseeable floor to rates along this lane.

SONAR: FreightWaves TRAC rate from Los Angeles to Dallas.
To learn more about FreightWaves TRAC, click here.

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.

SONAR: FreightWaves TRAC rate from Atlanta to Philadelphia.
To learn more about FreightWaves TRAC, click here.

The truckload market is showing ambiguous signs for its direction in the weeks to come. Factors against further growth include the rising prices of oil and diesel as well as spiraling inflation and an expected series of interest rate increases by the Federal Reserve. On the positive side, however, lies a shockingly resilient consumer base and sustained freight volume during the typically “quiet” season of 2022. Keep a close eye on spot rates and tender rejections during the next week, as those will tell whether shippers have built their proverbial houses out of brick or of straw.

For more information on the FreightWaves Freight Intel Group, please contact Kevin Hill at [email protected] or Tony Mulvey at [email protected].

Tony Mulvey

Tony Mulvey joined the FreightWaves team as an analyst focused on producing equity-like multi-modal research for the transportation industry. Prior to FreightWaves, Tony received a Bachelor’s degree in Economics from the University of Tennessee.