This week’s DHL Supply Chain Pricing Power Index: 40 (Shippers)
Last week’s DHL Supply Chain Pricing Power Index: 45 (Shippers)
Three-month DHL Supply Chain Pricing Power Index Outlook: 50 (Balanced)
The trucking industry operates in a market based on real-time demand and supply. When demand is higher than capacity, carriers gain negotiating power for rates. When supply is higher than demand, shippers have the advantage.
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.
The Pricing Power Index is based on the following indicators:
Load volumes: Momentum and trend neutral
The Outbound Tender Volume Index (OTVI.USA) is in the midst of its post-New Year’s rebound. The index sits slightly above the 2019 number and is currently at 9911.12. This is slightly below the March 2018 starting value of 10,000, but it is very likely the index will move above that number in the coming days as operations get back in full swing. OTVI is an index of accepted tender volumes at contract rates.
The current spread between contract and spot rates is much higher than the spread this time last year. Our volume index last year didn’t hit 10,000 until the end of February. This is not only because freight volumes were relatively weak, but also because many carriers were still looking to accept spot rate loads due to the spread being much tighter between contract and spot. This leads us to believe in the coming weeks OTVI may seem strong on year-over-year comparables, but this may be misleading. Nonetheless, OTVI may exhibit double-digit yearly gains in the next few weeks. We will continue to monitor and analyze the situation.
SONAR: OTVI.USA
Tender rejections: Absolute levels neutral; momentum positive for shippers
After peaking at 14.25% on Christmas Day, the Outbound Tender Reject Index (OTRI) has slipped to 7.89%. The fall was expected as drivers got their wheels turning again after spending time at home over the holidays. As shown in the chart below, a kindred decline occurred last year.
The index experienced a similar but more significant fall at the beginning of 2019, when the index dropped by half in just four weeks. We expect a similar acceleration to the downside in the coming weeks, but for now OTRI is still near 2019 highs.
SONAR: OTRI.USA (Green — 2018/19; white — 2019/20)
Spot rates: Absolute level positive for shippers; momentum neutral
Spot rates continued to climb modestly after Christmas, up slightly to $1.62/mile as of New Year’s Day. The 10- to 15-day lag renders insights behind schedule. The DAT freight rate (DATVF.VNU) will likely peak in the next few days before falling to typical January lows. Spot rates ended the year on a recurring seasonal tear, increasing 15% over the last eight weeks of the year.
The Freight Intel Group conducts a quarterly survey of small carriers (five to 100 trucks) to grasp their sentiment of volumes, rates, diesel prices and expectations. Expectations for line-haul rates have improved off a frightening Q319 outlook. Six months ago, 60% of small carriers expected lower rates for the next period compared to the same period in the previous year. This isn’t all too surprising — 2018 line-haul rates were astronomical. Regardless, expectations are improved but not overly positive for line-haul rates for the first three months of 2020 compared to the first quarter of 2019.
Source: Q1 — 2020 Carrier Outlook (SONAR)
SONAR: DATVF.VNU (Orange — 2017/18; green — 2018/19; blue — 2019/20)
Economic stats: Neutral for both shippers and carriers
The nonfarm private sector in the U.S. added 202,000 jobs in December, according to the ADP National Employment Report, which beat consensus expectations of 150,000 and was the best addition in eight months, confirming the underlying strength of the labor market. This report is a precursor to Friday’s nonfarm payrolls report from the Labor Department. Most of the growth came from medium- and small-sized businesses, with medium-sized businesses adding 88,000 jobs and small businesses adding 69,000. Furthermore, the service sector drove the vast majority of job gains, adding 173,000 jobs as compared with just 29,000 in the goods-producing sector. Trade, transportation and utilities drove 45% of the increase in services payrolls, adding 78,000 jobs. November’s ADP report saw payroll gains of 124,000, upwardly revised from 67,000.
On the whole, ADP’s national employment report is a positive for both the economy and trucking. Overall job gains are a positive for consumer spending (RESL.USA) and consumer confidence, meaning more demand for trucking outbound tender volumes (OTVI.USA). The trucking industry is adding jobs, which is likely a reflection of rising volumes, though it is a slight negative for the upward trend in tender rejections (OTRI.USA) we have witnessed recently because it reflects additional capacity. Also, the fact that services drove vastly more job gains than goods production reflects the weakness in the manufacturing and industrial economy.
SONAR Tickers: OTVI.USA, OTRI.USA
Also, U.S. consumer borrowing increased less than expected in November due to outstanding balances on credit cards and other revolving debt declining by the most in eight months, according to the Federal Reserve.
Total credit rose $12.5 billion from the prior month, expanding by an annual rate of 3.6%, but revolving debt declined by $2.4 billion. The former grew due to the growth of $14.9 billion in November for non-revolving credit, such as auto and school loans.
This report shows that even though Americans continue to spend at a solid clip, they are being careful about taking on additional credit card debt to do so, a healthy indication.
Transportation stock indices: Absolute levels positive for shippers; momentum positive for carriers
The FreightWaves transportation stock indices were predominantly positive this week. Our parcel index led the way this past week, up 0.8%, with the increase split evenly between UPS (+0.8%) and a marginal FDX correction (+2%). The truckload and logistics indices were each up 60 bps and 40 bps, respectively. Our less-than-truckload index was the only grouping to run negative this week, dragged to the downside by SAIA (-2.9%) and YRCW (-10.7%). In general, transportation stocks have performed strongly over the past three months and are up by double digits, though they have lagged the general market over the past year.
For more information on the FreightWaves Freight Intel Group, please contact Kevin Hill at khill@freightwaves.com, Seth Holm at sholm@freightwaves.com or Andrew Cox at acox@freightwaves.com.
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