Our Outbound Tender Volume Index (OTVI) is calculated on a seven-day moving average basis to smooth out daily volatility. Due to this, the index is distorted for the week following a national holiday, like Labor Day. This renders weekly comparisons near meaningless this week.
In a continuation from last week, the accepted tender volume level will be calculated to account for the high level of rejected tenders distorting the total volume levels. To account for that, we can use this simple formula to calculate the level of accepted tenders: OTVI * (1-OTRI) for any given day.
13,676 * (1 – .26) = 10,120 accepted tender volume index value for Sept. 9, 2020
9,214 * (1 – .047) = 8,781 accepted tender volume index value for Sept. 9, 2019
Using this metric to control for the high level of rejected tenders allows us to get a more accurate understanding of the true demand level. This does not mean demand is not at a historically high level — it is. With this metric, trucking volumes (van, reefer, flatbed) are running up over 15% year-over-year.
Volumes will likely bounce back quickly next week when the index normalizes. In fact, the rest of the year could be very strong for the industry as a whole. Retail inventories are down 12% year-over-year, while sales are up 11%. The possibility of another round of stimulus before the election would be a huge boon to this thesis, though that prospect appears unlikely. While consumer confidence has faltered, spending has remained strong. A recovery in the industrial segment of the U.S. economy is also occurring, which could broaden out the demand recovery at a time of tight capacity.
On a negative note, only one of the 15 major freight markets FreightWaves tracks was positive on a week-over-week basis. This is a function of Labor Day, and this ratio is likely to rebound next week. This ratio has been consistently high in recent weeks so breadth did see a deterioration this week. The only market with a gain this week in OTVI.USA was Laredo, Texas (3.15%). The markets with the largest declines this week in OTVI.USA were Fresno, California (-25.07%), Seattle (-21.01%) and Los Angeles (-20.08%).
Tender rejections remain elevated
Demand is simply outstripping capacity right now and nothing points to that changing anytime soon. Accepted tenders remain at a historically high level (despite high tender rejections), and carriers are exercising their options in searching for the highest rates and best loads. In doing so, carriers are being selective — accepting less than three of every four tenders. Drivers are particularly selective in the days leading up to a holiday, as they search for loads that lead them home. OTRI climbed nearly 5% this week and has now pulled even with the all-time high from March 2018 at about 27%.
There is a divergence occurring in rejection rates geographically in the U.S. As Zach Strickland, director of Freight Market Intelligence at FreightWaves, states, “Several of the largest freight markets in the West are showing declines in outbound tender rejection rates during the past two weeks (from a very high level), while many of the largest freight markets in the eastern half of the U.S. are showing further increases in outbound tender rejection rates.” Time will tell whether this pattern continues.
The demand backdrop has carriers sitting comfortably rebidding or rejecting loads. OTRI at 27% indicates more than one in every four contracted loads is being rejected across the country. This is historically an extremely high rate and is close to what we believe is the upper bound of the index. The market dynamic shifts at this level as contracted freight starts to be renegotiated at higher rates, thus leading to lower rejection rates. The managing director of a large, national freight brokerage confirmed to us that the market has already reached this level and renegotiations have begun. He believes this rebidding season will be the toughest for shippers (and brokers) in some time.
We believe there may be some normalizing after the Labor Day holiday, but we see no signs pointing to a major freight slowdown anytime soon. Consumer demand remains elevated on a yearly basis, and services spending has significantly shifted to good demand. This has benefited both shippers and carriers to this point, but capacity constraints are causing transportation costs to surge.
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