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Volumes are flatlining as spot rates slide further

This week’s FreightWaves Supply Chain Pricing Power Index: 45 (Shippers)

Last week’s FreightWaves Supply Chain Pricing Power Index: 45 (Shippers)

Three-month FreightWaves Supply Chain Pricing Power Index Outlook: 40 (Shippers)

The FreightWaves 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:

Shipment volumes are unseasonably low in the run-up to summer shopping

Freight demand is in a purgatorial limbo at present, as it has barely bounced back from last week’s dip but has not yet recovered enough to inspire any optimism. The Outbound Tender Volume Index (OTVI) is well below year-ago levels, even though accepted volumes are roughly neck and neck by the same comparison.

Tender volume continue to contract:
SONAR: OTVI.USA: 2022 (blue), 2021 (green) and 2020 (orange)
To learn more about FreightWaves SONAR, click here.

As stated, OTVI did rise by 1.7% on a week-over-week (w/w) basis, which is not a great amount. On a year-over-year (y/y) basis, OTVI is down 17.81%. Comparisons on a y/y basis can be thorny because OTVI can be inflated by an uptick in tender rejections. At this time last year, OTVI was greatly inflated by rising tender rejections, whereas rejection rates have since nosedived to incredible lows.

Looking at accepted tender volumes, which is OTVI adjusted by the Outbound Tender Reject Index (OTRI), we see a slight rise of 0.48% y/y and a bigger bump by 2% w/w. The y/y picture for accepted volume may not appear grim, but the overall freight market is historically strong during the run-up to summer. The current limping state of the market, on the other hand, should concern carriers.

According to the Labor Department’s latest consumer price index reading, inflation slipped to an annual rate of 8.3% in April, down slightly from 8.5% in March. April’s slight tumble was partly due to easing prices of gasoline, which have since set an all-time high in May at a national average of $4.42 per gallon. Prices for other household necessities, however, did rise in April: groceries were up 1% over March and a whopping 10.8% y/y — the largest yearly increase since 1980. Needless to say, discretionary spending by consumers is not likely to energize retail anytime soon.

Recently released data by Cass Information Systems, a leading payment processor in freight, reveals that freight shipments took an unseasonable 3.5% m/m dip in April. In its Transportation Index Report from April, the company stated that “the prospect of freight recession is now considerable” as, “after a two-year cycle of surging freight volumes, the freight cycle has downshifted with a thud.” One worrisome trend noted both by Cass and by FreightWaves is the shift in consumer spending from goods to services, the latter of which is not a significant driver of freight.

Volumes levels rise across the board:
SONAR: Outbound Tender Volume Index – Weekly Change (OTVIW).
To learn more about FreightWaves SONAR,
click here.

Of the 135 total markets, 75 reported weekly increases as freight demand stirs across the country.

Volumes are up in the majority of Texas’ markets. Freight demand in Dallas, the third-largest market in the nation by outbound volume, is up by 4.6% w/w. Freight volumes in McAllen, an important cross-border market with Mexico, are up 28% w/w. Freight demand in other markets, like Houston and Fort Worth, are also up, by 5.4% w/w and 1.9% w/w, respectively.

By mode: Reefer volumes have not budged the needle in any meaningful way. This lack of movement is striking because mid-May is supposed to be a strong period for moving produce, much of which is shipped via reefers. Aforementioned rises in groceries could be depressing consumer demand to some degree, although demand for produce is relatively inelastic: People always need to eat and produce is usually shipped on a tight schedule to preserve freshness. At present, the Reefer Outbound Tender Volume Index (ROTVI) is down 0.21% w/w and a shocking 36% y/y.

The trends in van volumes are roughly in line with the overall OTVI. The Van Outbound Tender Volume Index (VOTVI) is up by 1.7% w/w but is down 17.1% y/y. 

Flatbed rejections are falling, while dry van and reefer also show solid capacity

The rate of OTRI’s decline has continued to slow this week, but carriers are unlikely to celebrate as tender rejections remain entrenched in a downward trend. Except for the beginning of the 2020 pandemic, OTRI’s current trend marks both the steepest and the longest decline in a non-holiday-affected period.

Rejection rates are declining more slowly but still falling on a w/w basis:
SONAR: OTRI.USA: 2022 (blue), 2021 (green) and 2020 (orange)
To learn more about FreightWaves SONAR, click here.

Over the past week, OTRI, which measures relative capacity in the market, fell to 8.32%, a change of 27 basis points (bps) from the week prior. OTRI is now 1,575 bps below year-ago levels as it remains unshakably in single-digit percentages.

One big piece of news in the warehousing sector is industry leader Prologis’ recent announcement of a series of attempted bids to acquire Duke Realty, which owns over 160 million square feet of warehouse space domestically. Industrial real estate is currently at a premium, driven by the major gains seen by e-commerce over the past few years. Prologis’ own Industrial Business Indicator Activity Index was calculated at 65 during Q1; a reading of 50 or higher is indicative of growth. Accordingly, Prologis expects rents to increase by 22% during the year with vacancies remaining near 3.3%.

Capacity tightens in Indianapolis and Nashville, Tennessee:
SONAR: WRI (color)
To learn more about FreightWaves SONAR, click here.

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. As capacity is generally finding freight, there are only a handful of blue markets this week, which are the ones to focus on.

Of the 135 markets, 60 reported higher rejection rates over the past week as carriers compete for loads amid quieter freight demand. 

Michigan, the only state to post blue markets last week, has seen tender rejections drastically fall from their inflated highs. Meanwhile, rejection rates have risen in Indianapolis, which offers a substantial manufacturing base for the Midwest. Just south of Indianapolis, Nashville also reported higher rejection rates this week. Diesel prices in Tennessee have risen by an average of $2.34 per gallon y/y.

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

By mode: Although reefer rejections have been on a decline since March, the Reefer Outbound Tender Reject Index (ROTRI) cratered with an almost-vertical drop at the end of April and has flatlined since. Currently, ROTRI is at 10.77%, a 150-bp decline from last week and falloff of 3,016 bps y/y. Again, reefers should be in demand for the ongoing produce season, so this trend is both unseasonable and worrisome.

Reefers are not the only mode suffering from declining tender rejections: The Flatbed Outbound Tender Reject Index (FOTRI) fell off from the bump sustained over the past week. At 28.9%, FOTRI is down 216 bps w/w. Still, FOTRI is up 669 bps on a y/y basis. Dry van rejections, however, have no such favorable comparison. The Van Outbound Tender Reject Index (VOTRI) is down 29 bps w/w and 1,622 bps y/y.

Spot rates continue to slide as rejection rates shrink

A change in spot rate methodology comes this week as FreightWaves has released the National Truckload Index (NTI). The NTI is a seven-day moving average of national dry van spot rates that uses real-time booking data from FreightWaves’ Trusted Rate Assessment Consortium (TRAC), giving users pure insights into the current market.

Spot rates continue downward trend:
SONAR: National Truckload Index, 7-day average (blue, right axis) and dry van contract rate (green, left axis).
To learn more about FreightWaves SONAR, click here.

The rate of decline in dry van spot rates has accelerated, which implies that there is no reversing the downward trend in rates that is further exacerbated by the nosedive in tender rejections. Since the beginning of 2022, when spot rates averaged $3.55 per mile (inclusive of fuel), the NTI has declined 19%. At present, the average dry van spot rate sits at $2.88 a mile, down 4 cents from the week prior.

In February 2021, spot rates skyrocketed as snowstorms rocked a fragile supply chain, restraining capacity throughout the country. Rates are currently at the same level as that period of growth; however, since the NTI includes fuel costs, it is worth noting that diesel prices have risen 95% over that same period.

The creation of the NTI brought other indices to light as well, most notably the NTIL, National Truckload Index — Linehaul Only, which removes fuel from the equation, making a clearer comparison between contract and spot prices. NTIL has fallen by 27% since the beginning of March. The NTIL has accelerated downward since the beginning of May, however, falling by 6.5% since May 1, a decline of 14 cents per mile. 

Contract rates are the base linehaul rate exclusive of fuel and are reported on a two-week delay. Even so, contract rates are neck and neck with NTI spot rates from two weeks ago. Contract rates tanked in mid-April and threatened to be a lasting trend, in line with the other declines in freight demand, tender rejections and spot rates. However, contract rates quickly rebounded and have remained stable near $2.94 per mile, where they were two weeks ago.

The FreightWaves TRAC spot rate from Los Angeles to Dallas, one of the highest-volume lanes in the country, has continued along a downward trend that began at the start of the year. The TRAC rate fell 4 cents per mile this week to $2.62, a decline of 35%, or $1.41 per mile, in 2022 so far. Capacity has loosened significantly in Los Angeles as rejection rates have fallen 1,597 bps since Jan. 1, from 18.17% to 2.2%.

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

A similar story is playing out on the East Coast: Rejection rates in Atlanta have fallen 1,209 bps since the start of the year, from 19.4% to 7.3%. Accordingly, the TRAC spot rate from Atlanta to Philadelphia has fallen 15.6%, or 60 cents per mile, over the same period. Currently, the TRAC spot rate from Atlanta to Philadelphia stands at $3.24 per mile, with no change from the week prior. Compared to the decline in the overall OTVI, freight demand in Philadelphia is quite robust: Since March 8, when the OTVI began its slide, outbound volume in Philadelphia has declined by only 16.95% as opposed to the OTVI’s 17.81%.

SONAR: FreightWaves TRAC rate from Atlanta to Philadelphia.
To learn more about FreightWaves TRAC, click here.

As freight demand continues to be muted in a traditionally busy season, shippers will remain in control of setting rates. The quick recovery of contract rates to levels above spot rates (after factoring for fuel) might lead shippers to shift their attention to the spot market. One giveaway that shippers are moving their loads to the spot market will be if spot volumes rise while spot rates decline.

For more information on the FreightWaves Passport, please contact Kevin Hill at [email protected], Tony Mulvey at [email protected] or Michael Rudolph at [email protected].

Michael Rudolph

Michael Rudolph is a research analyst at FreightWaves and is a former freight broker. Prior to entering the logistics industry, Michael worked in academia. He holds an MA from the University of Chicago.