Where did all the truckload capacity go?

The Pricing Power Index is based on the following indicators:

Holiday noise continues to hold volumes back

Tender volume levels have continued their downward trend throughout the past week. The Outbound Tender Volume Index (OTVI) is down 25.5% week-over-week (w/w), but that is misleading because of the holiday, which is essentially a “0” day in a seven-day moving average.

Despite the soft week for volumes, OTVI is still outperforming 2020 levels by more than 5%. OTVI will continue to show weakness throughout the next seven to 10 days as the holiday noise is erased. Moving into the first quarter, which is traditionally the softest period for freight in the year, volumes will likely rebound considerably due to the ports continuing to work through backlogs and bookings destined for the U.S. reaching near record highs within the past week.

Despite OTVI underperforming for much of November and December, when the index is adjusted by the Outbound Tender Reject Index (OTRI), accepted volumes have run well above year-ago levels. Much of the outperformance is improved carrier compliance due to higher contract rates. Accepted tender volumes are currently running up over 14.5% y/y, even higher than the 7% y/y increase experienced last week.

With OTVI being affected by the holiday, looking at the weekly change across the country is almost irrelevant because tender volumes in 131 of the 135 freight markets within FreightWaves SONAR are lower w/w. Instead, looking at the weekly change in the Headhaul Index (HAUL), which is the difference between outbound tender volumes and inbound tender volumes, provides markets where conditions are changing.

Harrisburg, Pennsylvania, has further solidified its position as a headhaul market. Over the past week, HAUL has increased by over 26%. Inbound volumes into the market declined by 28.4% w/w while outbound volumes declined by 18.5% w/w, the smallest decline of the five largest markets in the country. The further imbalance in the market signals capacity will continue to tighten in the coming days.

By mode: Both reefer and van volumes were significantly affected by the holiday. The Reefer Outbound Tender Volume Index (ROTVI) is down 20.5% w/w. Even with the drawdown, the outlook for reefer volumes is positive moving into the first quarter of 2022.

The Van Outbound Tender Volume Index (VOTVI) is 27.7% lower w/w, but the decline in tender volumes shouldn’t be a surprise as holidays are essentially a “0” day in a seven-day moving average. As ocean bookings are near peak levels, truckload demand will likely be strong throughout the first quarter, though the quarter is traditionally a soft period for freight. 

Rejection rates remain elevated, breaking a seasonal trend

Carriers are enjoying a vacation period after generating record revenues throughout 2021. 

For much of the past year, OTRI has been above the 20% mark, which has kept pricing power with carriers for the entire year. This holiday season, unlike the two previous years, rejection rates have held up relatively well following Christmas. Over the past week, OTRI has increased by 30 basis points to 21.92%, but reached 22.5% on Tuesday. This is largely due to carriers setting record revenue and taking some time off between Christmas and New Year’s instead of chasing revenue before the calendar year turns over.

Rising contract rates have aided in rejection rates falling from 27% to close to 20% throughout the year. Inflationary pressure on rates typically picks up when rejection rates are between 7-10%, so inflationary pressures remain, especially for contract rates heading into 2022. 

As contract rates increase in 2022 and capacity continues to enter the market, rejection rates will likely continue the decline after drivers return to the road following the holidays. 

Of the 135 markets, 68 experienced rejection rates move higher this 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. With capacity tightening around the country, there are a lot of blue markets, which are the markets to focus attention on.

The three largest markets in the country — Ontario, California, Atlanta and Harrisburg — have all experienced capacity tightening faster than markets of like size. Harrisburg, which has experienced HAUL increase by over 26% w/w, experienced capacity tighten the most among the large markets. Rejection rates in Harrisburg increased by 172 bps w/w.

In Ontario, rejection rates increased by 147 bps w/w and rejection rates increased by 167 bps w/w in Atlanta. 

Given the demand on the West Coast that will likely resume early in 2022, capacity will likely loosen in Ontario as drivers return to the road.

By mode:  Only the dry van market experienced tightening over the past week. The Van Outbound Tender Reject Index (VOTRI) increased by 78 bps w/w to 21.41%. With the expectations of elevated freight volumes into the first quarter of 2022, van capacity will likely remain quite tight.

The reefer market experienced some loosening over the past week. The Reefer Outbound Tender Reject Index (ROTRI) fell by 161 bps over the past week to 37.41%. Even with the drawdown over the past week, the reefer market is still the tightest of the equipment types within SONAR.

Flatbed rejection rates, which set a new all-time high last week, had the most dramatic drawdown. The Flatbed Outbound Tender Reject Index (FOTRI) fell by just 321 bps w/w to 31.31%. Overall, securing flatbed capacity is much more difficult than it was in 2020 and early 2021.

Spot rates rebound as capacity comes offline

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

The Truckstop.com national spot rate, based on the top 100 lanes on Truckstop.com’s load board, bounced back as capacity tightened. The national spot rate increased by 12 cents per mile to $3.56, including fuel surcharge and other accessorials, erasing all of the previous week’s increase. Even with the recent pullbacks, Truckstop.com’s national spot rate has maintained a near 20% gap with 2020 levels.

Of the 102 lanes from Truckstop.com’s load board, 80 reported increases last week. The Los Angeles to Portland, Oregon, lane took another large increase over the past week, increasing by 33 cents per mile to $4.96. 

Contract rates took a slight step lower, falling 1 cent per mile to $2.74. Contract rates are reported on a two-week lag, thus the impacts of the Christmas holiday have yet to be seen. Expect that contract rates will experience another uptick ahead of the first quarter of the year.

Contract rates, which are the base linehaul rate excluding fuel surcharges and other accessorials that are included in spot rates, are maintaining a similar gap as spot rates, running up 18% y/y.

FreightWaves’ Trusted Rate Assessment Consortium (TRAC) spot rate from Los Angeles to Dallas increased modestly over the past week. The FreightWaves TRAC rate in this dense lane increased by 1 cent per mile to $4.03. Expect some upward pressure throughout next week as volume imbalances will likely tighten capacity in Southern California in the coming days.

FreightWaves’ TRAC spot rate from Atlanta to Philadelphia has started to ramp up. The FreightWaves TRAC rate increased by 5 cents per mile to $3.79 over the past week.

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 [email protected] or Tony Mulvey at [email protected].

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