Today one of SONAR’s signature indices, the outbound tender rejection index, turns one year old: the first data points in six major freight markets (Los Angeles, Seattle, Dallas, Atlanta, Chicago, and Philadelphia) are on October 17, 2017. Year-over-year comparisons can be made now, and if you take the time to look backwards at the historical data, it’s fascinating how much freight markets have changed in a year.
This morning Zach Strickland pointed out that we’re in a maturing, unusually long-lasting bull cycle for trucking. In years previous, carriers had to scramble to capture margins during freight surges that lasted just a few short months: the current expansion has been underway for nearly a year and a half. Because this expansion has been so long-lived, some interesting dynamics have emerged. The first is that contract freight has been effectively re-priced to tamp down spot market inflation, causing spot rates to fall back under contract prices. Dry van linehaul spot rates were at an average of a 23 cents per mile discount to contract freight in September, according to DAT’s RateView tool.
In SONAR, the flip back to contract can be seen in OTRI. On October 17, 2017, 20.83% of the tendered loads outbound from Atlanta were rejected—this was in the middle of a white hot, volatile peak season that took most shippers by surprise. In contrast, even though ATL’s outbound volumes have climbed rapidly over the past eight days, only 9.44% of outbound tendered loads in that market are being rejected.
Did you know?
The Census Bureau reported this morning that total new housing starts fell 5.3% in September to a 1.201 million seasonally adjusted annualized pace. This fell below consensus expectations of a decline to a 1.216 million pace as housing construction continues to struggle to find its footing.
“Clearly, [our customers] want to keep doing business with CSX. They don’t want to—they want to move more freight to rail and to CSX rather than truck and they’re doing that. We see evidence of that, especially in like our forest products business and our metals business. You’ll see those double-digit growth in volumes in Q3. That is us bringing back share that those customers had to move to truck last year or early in the year because our surge levels weren’t where they should have been.”
-CSX CEO Jim Foote, during last night’s Q3 earnings call
In other news:
Japan’s top container line shipping line projects $600 million loss
Japan’s Ocean Network Express, one of the world’s largest container shipping operators, faces a $600 million loss in its first year in operation as it struggles with a new information technology, staff shortages and a rapidly rising fuel costs. (Wall Street Journal)
U.S. oil service firms face tough quarter despite high crude prices
Even as crude prices hover near four-year highs, U.S. oilfield service firms’ third-quarter results due out in coming days will reflect a shaky recovery, as their customers face drilling constraints and pressure to hold down spending. (Reuters)
Trump bails on coal industry incentives
President Trump has reportedly cancelled a plan proposed by Energy Secretary Rick Perry to provide financial support for troubled coal-fired power plant operators, Politico says, quoting four unnamed sources familiar with the matter. (naked capitalism)
Blockchain: is it really the panacea for container supply chains?
The benefits of blockchain-backed applications for container shipping came under the spotlight at the TPM Asia conference in Shenzhen last week. And not all stakeholders are convinced this budding technology is the answer to the industry’s data sharing conundrum. (The LoadStar)
Tearing apart Teslas to find Elon Musk’s best and worst decisions
The company now boasts the best technology of any electric car, with potential profit margins that would be the envy of most automakers. But Tesla is squandering that edge with wasted expenses linked to poor design and bloated manufacturing. (Bloomberg)
The effects that contract repricing has had on spot market volatility on a year-over-year basis can be seen in other major freight markets as well. Take Los Angeles, for instance. OTRI.LAX has fallen apart as shippers desperate to secure capacity increased contract rates an average of 14.6% from October 2017 to September (according to DAT’s RateView): tender rejections on loads outbound from Los Angeles were 20.84% on October 17, 2017, but have fallen to 8.61% today.
Hammer down everyone!