FreightWaves Pricing Power IndexInsightsNews

Thanksgiving noise gone, difficult capacity conditions continue

This week’s DHL Supply Chain Pricing Power Index: 70 (Carriers)

Last week’s DHL Supply Chain Pricing Power Index: 70 (Carriers)

Three-month DHL Supply Chain Pricing Power Index Outlook: 65 (Carriers)

The DHL Supply Chain 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:

Tender volumes rebound, erasing a lot of the holiday noise

As expected, volume levels snapped back, erasing some of the noise created by Thanksgiving. The Outbound Tender Volume Index (OTVI), a measure of shippers’ request for capacity, jumped 27.5% day-over-day (d/d) as Thanksgiving was removed from the seven-day moving average.

Tender volumes start to erase holiday noise:
SONAR: OTVI.USA: 2021 (blue), 2020 (green) and 2019 (orange)
To learn more about FreightWaves SONAR, click here.

Volumes started declining on Thanksgiving and furthered the pullback on Black Friday, so expect that tender volumes will continue the rebound, erasing the holiday noise into the weekend. Tender volumes returning to the pre-Thanksgiving peak remains to be seen, but the elevated tender volume levels compared to 2019 levels should continue.

Tender volumes have underperformed 2020 since the beginning of November, but the important aspect to remember is that tender volumes include both accepted and rejected tenders. In 2020, rejection rates were more than 600 basis points (bps) higher than they currently are, which is part of the reason why tender volumes as a whole are underperforming year-ago levels. 

If OTVI is adjusted by the Outbound Tender Reject Index (OTRI), volumes are actually outperforming 2020 levels. Currently, accepted tender volumes are up 26% above year-ago levels, though that is slightly misleading due to the timing of Thanksgiving. Ahead of the Thanksgiving pullback in volumes, accepted tender volumes were up 4% y/y, so expect to be back in that range in the coming days.

Where do volumes go from here?

Inventory levels are still being replenished, with Walmart, one of the nation’s largest retailers, noting that levels are up 10% y/y. The inventory-to-sales ratio is still depressed compared to pre-pandemic levels, so as retailers continue to build inventory levels, tender levels will benefit.

Additionally, the consumer continues spending, with Bank of America’s total card spending continuing to run up 16.5% on both a one- and two-year basis. 

A slowdown in consumer spending will likely be a catalyst for freight volumes to continue the slide into the first quarter of 2022, which is already the traditionally softest quarter for freight.

Tender levels lower in the majority of the country:
SONAR: OTVIW (color) and Outbound Tender Market Share (height).

To learn more about FreightWaves SONAR,
click here.

Consider most of the noise erased in the vast majority of the freight markets in the country. Of the 135 freight markets tracked by FreightWaves SONAR, 103 had higher tender volumes over the past week. The second-largest market in the country, Atlanta, experienced a tender volumes increase of 13.6% w/w, the 39th-largest increase over the past week.

Ontario, California, maintains its status as the largest freight market in the country but is still suffering from depressed tender volumes over the past week. Tender volumes in the market are still down 2.85% w/w and nearly 20% off the pre-Thanksgiving peak. Expect that volumes in this market will continue to recover in the coming days, as in most other major markets in the country.

By mode: Reefer tender volumes have recovered faster than the overall volume index. The Reefer Outbound Tender Volume Index (ROTVI) increased by 8% over the past week but remains 9% off the pre-Thanksgiving peak. Moving into the winter months could provide a runway for reefer volumes to grow, especially as the omicron variant begins to pop up around the country.

Dry van volumes have been slightly slower to erase the holiday noise. Over the past week, the Dry Van Outbound Tender Volume Index (VOTVI) increased by nearly 5%. Even with the increase, van volumes are still nearly 15% off the Thanksgiving peak. Again, tender volumes should continue to recover over the next few days. The recovery will disrupt comps for another week before normalizing.

Capacity remains tight as rejection rates are stable around 20%

Rejection rates haven’t fallen as fast as they did in 2020, but they didn’t rise to the same extreme either. OTRI, a measure of relative capacity in the market, found some stable footing around the 20% mark over the past month.

Rejection rates plateau after a recent increase
SONAR: OTRI.USA: 2021 (blue), 2020 (orange) and 2019 (green).
To learn more about FreightWaves SONAR, click here.

During the past week, rejection rates have actually increased by 29 basis points (bps), to 19.68%. Rejection rates continue to underperform year-ago levels, down 614 bps y/y, but that decrease has been driven by both capacity entering the market and contract rates rising by nearly 20% in the past year.

Securing capacity in the current environment is still quite difficult. Anytime tender rejection rates are above the 7%-10% range, capacity is quite tight in the market and inflationary pressures on spot rates intensify. Over the past 16 months, rejection rates have been well above the 7%-10% threshold, spending most of the time above the 20% mark. Since March, rejection rates have been sliding, signaling that securing capacity has become easier. At the same time rates have slid over the past three months, signaling that the inflationary pressures may not be as prevalent.

Difficult capacity conditions continue to sweep the nation:
SONAR: WRI (color)
To learn more about FreightWaves SONAR, click here.

The slight uptick in the overall rejection rate comes as the majority of the freight markets in the country experienced relative capacity tighten during the past week. Of the 135 markets, 73 experienced rejection rate increases the past week.

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. A blue market is any market that is tightening faster, highlighting increased prices as well as markets that should take priority. Conversely, red markets are loosening faster relative to the size of the market, where shippers are gaining some pricing power.

The two markets that are experiencing extreme changes in capacity, relative to the size of the market, are Memphis, Tennessee, which is loosening, and Denver, which is tightening.

The Memphis market has been one of the more volatile markets the past two months, with rapid waves of tightening followed by extreme loosening. This week was one in which capacity in the market loosened considerably. The rejection rate in the market fell by 584 bps w/w to 24.65%, the lowest it has been since mid-September.

In Denver, capacity constraints have intensified over the past week as rejection rates increased by 380 bps w/w. The current rejection rate sits at 22%, which like many markets across the country is significantly below year-ago levels, 936 bps in this case. As winter weather poses a risk to truckload capacity in the coming months, expect there to be volatile periods in the Denver market.

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

By mode: Capacity constraints are still significantly impacting the reefer market as evident by the reefer rejection rate remaining above the 35% mark. The Reefer Outbound Tender Reject Index (ROTRI), the measure of relative reefer capacity in the market, has been the highest among the three equipment types in SONAR. Over the past week, reefer rejection rates have increased by 56 bps, further signaling the difficulty in finding reefer capacity.

The Van Outbound Tender Reject Index (VOTRI) did experience a slight uptick over the past week, jumping 33 bps. The largest equipment type within SONAR has seen capacity ease over the past eight months, but during November rejection rates have stabilized. Expect that we continue to see this normalizing of rejection rates as contract rates are repriced higher and capacity continues to enter the market.

The flatbed market has tightened more than any of the other equipment types as the Flatbed Outbound Tender Reject Index (FOTRI) has increased by 1,630 bps y/y. Just over the past month, FOTRI has increased by 650 bps, the most significant m/m increase since early June.

Spot rates move higher during the holiday week

The spot rate data available in SONAR from Truckstop.com is updated every Tuesday with the previous week’s data.

Truckload rates pop up during Thanksgiving week:
SONAR: Truckstop.com’s national spot rate (blue, right axis) and dry van contract rate (green, left axis).
To learn more about FreightWaves SONAR,click here.

The Thanksgiving holiday has dramatically impacted spot rates, even though rejection rates and volume levels are lower this week. Truckstop.com’s national spot rate increased by 7 cents per mile, coming in at $3.47 per mile, including fuel and other accessorials. This was the first uptick in Truckstop.com’s national spot rate in more than a month. The uptick in spot rates is similar to what happened in 2020 around the Thanksgiving holiday, but spot rates in 2021 are still 14% higher y/y.

Of the 102 lanes from Truckstop.com’s load board, 69 reported increases last week. Outbound of Los Angeles took a step higher on seven of the eight lanes, with the lane of Los Angeles to Denver erasing part of last week’s increase, falling 13 cents per mile, to $4.88. The increases out of Southern California are no surprise given that capacity tightens ahead of the holiday before other markets in the country. Expect that rates will slowly fall over the next couple of weeks before popping back up before the Christmas holiday.

Contract rates did fall by 1 cent per mile over the past week, to $2.69. Contract rates are reported on a two-week lag, so the impacts of Thanksgiving have yet to materialize but expect them to experience a bump over the next couple of weeks. 

Contract rates, which are just the base linehaul rate excluding fuel surcharges and other accessorials that are included in spot rates, have closed the gap with spot rates significantly over the past year. Contract rates are outperforming spot rates, continuing to run 20% higher than in 2020.

FreightWaves released the Trusted Rate Assessment Consortium (TRAC) spot rates recently during the F3 Virtual Experience. The spot rates are the average buy rate derived from 3PLs’ and freight brokerages’ reported booked and covered dates. FreightWaves TRAC rates are updated daily and weighted based on proximity to a specific origin/destination with a maximum of 300 miles and length of time to the current date.

FreightWaves TRAC provides average all-in spot rates for more than 650,000 unique van lanes and over 300,000 unique reefer lanes. Additionally, it provides a range, with the low rate representing the 33rd percentile and the high rate representing the 67th percentile. FreightWaves TRAC provides a confidence score between 1 and 5, with 5 being high confidence, based on the metadata to determine the rate.

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

The chart above is the FreightWaves TRAC rate from Los Angeles to Dallas, showing that the current rate is $4.12 a mile with a confidence score of 5, an increase of 2 cents per mile over the past week. This lane has a lot of volume moving from a tight radius, which leads to the high confidence score in the rate.

Other dense lanes, like Atlanta to Philadelphia and Chicago to Atlanta, experienced upticks in FreightWaves TRAC rates over the past week. The Atlanta to Philadelphia lane increased 7 cents per mile, to $3.64, and the Chicago to Atlanta lane increased 1 cent per mile, to $4.05.

Ultimately, some of the inflationary pressures on rates have alleviated themselves as capacity has returned to the market. Pressure remains on contract rates to move higher in 2022, due to the elevated rejection rates, but the move higher may not be as pronounced as it was in 2021. Either way, carriers still hold most of the pricing power in the market, though shippers are slowly clawing it back in their favor.

For more information on the FreightWaves Freight Intel Group, please contact Kevin Hill at khill@freightwaves.com or Tony Mulvey at tmulvey@freightwaves.com.

Check out the newest episodes of our podcast, Great Quarter, Guys, here.

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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.