After three consecutive weeks of very little volatility, the Outbound Tender Volume Index (OTVI) showed signs of life, jumping ~4% this week. Besides a pre-Thanksgiving surge last year, OTVI is at an all-time high at 15,871 currently.
According to Bank of America, total card spending was up 45% over last year and up 23% over 2019 for the seven days ending March 20.
The stimulus is providing a huge boost to Americans, who by and large, still remain unable to spend on big-ticket services like concerts, sporting events or amusement parks. The recent stimulus has created the strongest spending gains in furniture, online electronics and clothing. The reversion back to services has not begun in earnest and it appears that consumer balance sheets are in a strong enough position to generate a strong service recovery in the back half while maintaining elevated goods demand throughout the year. The savings rate in the U.S. has come down sharply since the early onset of the pandemic, but it’s still more than double the previous 10-year average.
Yearly comparisons have become increasingly difficult over the past few weeks as we comped over the lockdown-induced panic buying and consumer hoarding that sent OTVI up 30% in 10 days. After adjusting for the extremely high level of tender rejections, OTVI is running up 13% year-over-year.
Last year’s volume surge was gone as quickly as it came. OTVI went from up 30% year-over-year to down 20% in a matter of a couple weeks. With that said, yearly volume comparisons will be meaningless for the majority of Q2 when freight demand plummeted. For the next several weeks, it makes more sense to show freight demand on a two-year comparison to mitigate the distortion in one-year comps.
Given how strong freight demand is currently, it may seem there’s not much more room to run, but we haven’t entered the true spring freight season. With produce season approaching, stimulus-driven consumer demand unbridled and the industrial economy continuing to blossom, the setup appears extremely bright for carriers.
On a positive note, twelve of the 15 major freight markets that we monitor as a broad, representative benchmark were positive on a week-over-week basis. This ratio accelerated 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 Savannah, Georgia (21.03%), Dallas (15.66%) and Newark, New Jersey (10.90%). The markets with the largest declines this week in OTVI.USA were Indianapolis (-6.08%), Laredo, Texas (-4.18%) and Fresno, California (-3.87%).
Tender rejections hover near peak
The Outbound Tender Reject Index has been retreating marginally for a month since the blizzard disrupted freight flows across the country. This week, OTRI jumped back toward the familiar 30% natural ceiling. Over the past six months, the national rejection index has flirted with 30% four times, including currently.
The rejection leg up seems to be mostly volume driven. The market in which OTRI increased the most this week was Savannah, Georgia, where volumes also surged to a new all-time high. Savannah is of course home to one of the nation’s most important eastern ports and is home to millions of warehouse square footage. To see outbound volumes surge in the last week of the quarter is unsurprising, but it is slightly odd that carriers seem to have not anticipated this. On the other hand, it could simply be that carriers have optimized their networks to serve the West Coast, where volumes seem to be never-ending.
It is likely that freight demand will remain elevated 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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