As expected, freight volumes have roared out of the Independence Day disruption and currently sit at 12,592. The Outbound Tender Volume Index (OTVI) remains up 25% year-over-year, hardly falling from its pre-July Fourth peak. July of last year (2019) exhibited typical freight seasonality, so yearly comparisons are relatively easy. 2018 was a banner year for freight volumes and yet, currently freight volumes are 23% higher than 2018.
There is little evidence that leads us to believe freight volumes will fall off significantly in the coming weeks. The threat of lockdowns created a panic-buying situation in March, then freight volumes plummeted because the majority of businesses were closed. Now, regions are going back into lockdown but the restrictions are less severe. The sectors being locked down are predominantly service-based industries that do not move a large percentage of the nation’s freight. Consumer demand remains strong (as demonstrated by June’s retail sales report and card spending data from Bank of America this week actually being up 0.5% year-over-year). And the overall economic backdrop is on more solid footing given a booming housing market (due to generationally low 30-year fixed mortgage rates) and as manufacturing data from the Empire State Index and the Philly Fed Index demonstrate a slow rebound to growth. For these reasons, we do not believe the typical seasonal decline will be as pronounced this year, meaning carriers are currently in an ideal position (the strongest since 2018).
On a positive note, 14 of the 15 major freight markets FreightWaves tracks were positive on a week-over-week basis. This ratio has been consistently high in recent weeks and had an easy comparison this week against a holiday weakened week. The markets with the largest gains this week in OTVI.USA were Atlanta (24.02%), Cleveland (23.05%) and Los Angeles (21.70%). The only market to decline this week was Miami (-3.63%).
Tender rejections remain elevated
The Outbound Tender Reject Index (OTRI) is exhibiting stickiness at a high level. OTRI climbed even higher this week than the week leading up to the Fourth. We have heard from large, asset-based carriers that they are rejecting more freight than they have in a very long time. OTRI currently sits at 16.55% and is trending upward.
In contrast to the tightness seen in March 2020, volumes could likely remain elevated for some time, unlike in April when volumes plummeted to holiday levels due to nationwide lockdowns. Tender rejections in the double-digit range appear likely as long as volumes remain elevated — and all signs currently point to this happening. Excluding the short-lived peak in March, from a capacity standpoint, carriers are in the best position since the summer of 2018.
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