This week’s DHL Supply Chain Pricing Power Index: 85 (Carriers)
Last week’s DHL Supply Chain Pricing Power Index: 80 (Carriers)
Three-month DHL Supply Chain Pricing Power Index Outlook: 80 (Carriers)
The DHL Supply Chain Pricing Power Index uses the analytics and data contained in FreightWaves SONAR to analyze the market and estimate the negotiating power for rates between shippers and carriers.
Freight volumes show no signs of slowing this week, and tender rejections are moving in lockstep. Truckstop.com spot rates have surged to two-year highs, and spot volumes are also elevated. Initial jobless claims rose above one million again this week, a reversal of a multi-week downtrend.
The Pricing Power Index is based on the following indicators:
Load volumes: Absolute levels and momentum positive for carriers
We are back within “broken record” territory, as we were at the beginning of the year. This time around, the repeating song is music to carriers’ ears. Meaning, each week I write that volumes keep gushing throughout the country. The Outbound Tender Volume Index (OTVI) climbed another 6.3% to a new all-time high of 15,132. OTVI has posted a string of consecutive all-time highs for many weeks now. It is worth noting that our volume index does include some level of rejected tenders, so the overall level of freight is slightly lower than the indexed reading. However, this does not mean the index is not indicative of the overall freight level. Freight volumes remain well above either 2018 or 2019 by roughly 20%-25%.
If anyone needs more validity to the state of the market, Kevin Hill, founder and CEO of CarrierLists, recently explained to the Freight Intel Group that the demand for his company’s product reminds him of early in the 2018 cycle. CarrierLists produces and sells lists of carrier information and markets to freight brokerages. He went on to say freight brokerages are desperate not to lose their high-quality customers because of not being able to meet said customer demand. To avoid this, brokers are looking for capacity in every way they can, including CarrierLists.
As mentioned above, some portion of this freight run can be attributed to rejected contracted tenders, but the trend is intact. Freight volumes are running double digits up year-over-year and on a two-year stack comparison.
Tender rejections: Absolute levels and momentum positive for carriers
After a slight lull early last week, tender rejections began to climb and the trend has continued this week as well. The Outbound Tender Reject Index (OTRI) climbed another 8% this week and currently sits at just over 23.5%. Meaning one in every five tendered loads is being rejected at contracted prices.
The index continued exhibiting stickiness at a high level for a seventh week in a row. OTRI is now well above its July Fourth peak and sits comfortably above its March 2020 panic-buying-induced peak. The next milestone for the index would be crossing over the 2018 summer peak level of roughly 26%. We have heard for weeks now that large, asset-based carriers are rejecting more freight than they have in a very long time.
The supply-demand dynamic of May, June and July has been much different than March and April. During March we saw volumes and rejections rise in stepwise fashion to all-time highs in a matter of weeks. This time around the rise in freight volumes and tender rejections has been slower but consistently upward and gradual.
Spot rates: Absolute levels neutral, momentum positive for carriers
Spot rates climbed again this week to another yearly high. We no longer will be using DAT spot rates in this weekly publication and will use Truckstop.com spot rates from now forward. Rates have been gradually rising off the bottom in early May and are now above the 2018 summer peak. Rates are up nearly 10 cents since last week.
One thing to note is that rates have now pushed above the 2018 comparable — 2018 was a strong year for volumes and rates, especially during the early summer months. While rates had begun to exhibit normal seasonality in August 2018, it is still noteworthy to see rates above that mark now.
After two weeks of rapidly declining spot volumes, the Truckstop.com spot volume lane pairings bounced back in a big way last week. We felt this may be an early indictment of overall volumes coming to a halt, but that may not be the case. One week does not create a trend, but it is very encouraging to see spot volumes rebound last week and stay mostly green this week.
Rates are elevated right now and the supply-demand dynamic suggests they will remain so for some time. Carriers are rejecting loads at a high rate and volumes are flowing at historic levels. Carriers have options and they are exercising them in search of margins.
Economic stats: Momentum and absolute level neutral
Several economic releases this week are worth noting.
Weekly jobless claims were released Friday and give us one of the best close-to-real-time indicators of the overall economy.
This week’s jobs news was a slight setback relative to the improved momentum and change in tone we had seen in recent weeks and months. Initial jobless claims came in at 1.1 million last week, which was worse than consensus expectations of 923,000. This comes on the heels of last week being the first week that initial jobless claims fell below 1 million since mid-March. Jobless claims have now fallen in 18 of the past 21 weeks dating back to the peak weekly jobless claims number from late March. There was good news, though. Continuing claims (a rough proxy for unemployment) dropped 636,000 to 14.84 million.
Initial jobless claims (weekly in 2020)
Source: CNBC, U.S. Department of Labor
Turning to consumer spending as measured by Bank of America weekly card (both debit and credit) spending data, total card spending in the latest week was essentially flat at -0.1% year-over-year. This is within the recent flattish range but well off the ~40% declines from late March and early April. As we usually note, keep in mind there is a beneficial mix shift from cash to debit ongoing that is somewhat inflating these numbers. One can tell this is the case from the fact that debit card spending is currently running up double digits year-over-year and far outpacing credit card spending, which is down in the low to mid-teens range year-over-year.
On the positive side, card spending between early reopening and late reopening states has converged (regardless of case counts). However, a warning sign that emerged last week that bears watching received further confirmation this week: Spending among those no longer receiving unemployment insurance (UI) benefits is starting to fall and is particularly acute with lower-income Americans. Spending by lower-income Americans who previously received UI is falling at a rate of 12% year-over-year; previously, the low-income population was the strongest spending cohort. It is less bad for previous middle- and upper-income UI recipients but still falling materially. If Washington does not quickly renew the expired benefits, there could be a sharp drop-off in consumer spending and therefore trucking volumes in coming weeks. The current talk in Washington is that a deal is far away as negotiations have reached a stalemate.
A warning sign: Spending among those affected by delayed UI is falling
By category, online electronics (up 95% year-over-year this week) and online retail (up 69%) continue to be the standout performers. Other strong categories include home improvement and furniture. Grocery has stabilized at 11% year-over-year. Brick-and-mortar retail spending has improved dramatically as most states reopen but has stalled in the negative mid-single-digit range year-over-year as the case count remains elevated in many states. Finally, airlines, lodging and entertainment continue to be the worst-performing categories by far, but lodging is significantly up off the bottom and appears to be gaining momentum in recent weeks.
Card spending by American consumers has a strong correlation with truckload volumes, so we will continue to monitor this data closely going forward.
Source: Bank of America Merrill Lynch
Transportation stock indices: Absolute levels and momentum positive for carriers
It was a solid week for our transportation indices following several strong weeks over the past couple of months. LTL was the standout performer at 2.1%, and parcels was the worst performer but still flat this past week.
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