As we enter the second quarter, the setup couldn’t be much more favorable to carriers. The Outbound Tender Volume Index (OTVI) retreated 4% this week but remains not far off of an all-time high at 15,178.
The economy is in full-on recovery mode, driven by stimulus-aided consumer spending. But the consumer economy is not the only sector in growth mode. The ISM Purchasing Managers Index for the manufacturing sector rose to 64.7 in March, the highest reading since December of 1983.
The National Association of Home Builders/Wells Fargo Housing Market Index has declined since its all-time high in November but remains extremely high at 82.
The economic recovery paired with Americans still being unable to spend on big-ticket services has created a near-perfect backdrop for carriers in Q2. The Port Report, produced by the National Retail Federation and Hackett Associates, is calling for imports to “set records now into the summer” as consumers keep spending on goods.
(Chart: Bank of America)
The most recent stimulus round is providing a massive boost to consumers, who by and large are still stuck at home. Working from home has been a major success for millions of Americans, and people keep spending on at-home upgrades like furniture and online electronics.
Service-based spending categories like airlines, lodging and restaurants all were positively impacted by the stimulus, but the top 5 biggest growth segments came in goods. With the roaring consumer economy, blossoming industrial recovery, white-hot housing market and historically depleted inventories, there’s very little outside of severe inflation that could derail this trucking market.
On a negative note, only four of the 15 major freight markets that we monitor as a broad, representative benchmark were positive on a week-over-week basis. This ratio decelerated meaningfully compared back to the stronger levels it has become accustomed to in recent months as the freight market rallies. The markets with the largest gains this week in OTVI.USA were Indianapolis (6.46%), Seattle (3.04%) and Houston (0.98%). The markets with the largest declines this week in OTVI.USA were Dallas (-10.40%), Cleveland (-8.99%) and Chicago (-8.96%).
Tender rejections hover near peak
In the last week of Q1, the Outbound Tender Reject Index (OTRI) jumped back toward its familiar natural ceiling of 30% as shippers rushed to get freight out the doors. After topping out at 28.3% on March 28, the U.S. aggregate OTRI has declined to 26.4% currently. This is an extremely high level by any measure; carriers are still rejecting more than 1-in-4 electronic tenders at contract rates.
It seems that the surge in tender rejections was mostly volume-driven as shippers sought out last-minute shipments. The retreat this week is unsurprising, but what happens over the next few weeks will be telling for the summer season. Produce season is just beginning, and reefer capacity has rarely been tighter. The Reefer Outbound Tender Reject Index is at a staggering 45%, just down from the all-time high in the weeks after the winter storms.
Higher freight demand is likely in the coming months, and there are no immediate signs of capacity relief visible. The port congestion has prompted retailers to seek alternative routes, which will benefit East Coast ports, but with carriers optimized for LA/Long Beach, it may create lasting volatility.
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