State of Freight webinar for May: Not an inflection point yet but a benchmark turns higher

It isn’t much but a recent upward turn in the Outbound Tender Rejection Index in FreightWaves SONAR was a key focus of the discussion Wednesday in FreightWaves’ State of Freight webinar for May.

With Senior Analyst Tony Mulvey sitting in for FreightWaves CEO Craig Fuller alongside FreightWaves Director of Market Intelligence Zach Strickland, the focus was on whether there was enough statistical evidence that the turn that freight market participants have been waiting for seemingly forever had finally come.

Here are five takeaways from the chat.

The OTRI is sending out bullish signals

Strickland and Mulvey displayed charts of the national OTRI, which measures the percentage of dry van contracted freight rejected by a carrier when tendered by a shipper. That percent was 3.08% as April drew to a close. But on Wednesday, it was up to 4.82%.

Strickland noted that compared to some past figures, the latest number looks puny. “Sure, rejection rates aren’t 20%, they are not even 10%,” he said. “Actually, we haven’t even crossed 5%. So we’re still in what we would consider a very loose environment. But the sensitivity of the market has been increasing.”

According to Strickland, the market is not yet at a place where it could be called an “inflection point.” “But it looks like we’re seeing some increased signs that the market is actually turning.”

What a turn in the market would mean for shippers

Shippers are likely seeing their good times come to an end. “It’s one of those times where you’ve been having a pretty easy time of it,” Strickland said of shippers. “And in terms of transportation managers, any bad decision you make is almost easily covered up with the abundance of capacity.”

It’s a time when it’s possible for those shipping managers to sometimes get “a little bit complacent.” But “that time is now going away, even though it’s not gone away yet.” Shipping managers will need to “think differently.” True risk management will need to be employed as opposed to a weak market thought process that said “let’s just get our cost threshold.”

Mulvey said those transportation managers will be seeing a market where cost savings to the shippers “already has happened.” First quarter earnings calls reflected the fact that volumes haven’t slipped that much but revenues were down 8% or 9%. But Mulvey said contract prices are likely to “flatten out” from here, “and the cost savings element will go away.”

The impact of Roadcheck

With the CVSA’s International Roadcheck Week in the books, the question is what the impact has been on markets and whether the increase in OTRI was driven in part by that safety program, when many drivers stay off the highway.

The increase in the National Truckload Index (NTI) in recent weeks, for all forms of transportation, may have been driven in part by Roadcheck Week but it isn’t the entire explanation, Strickland said. “All three of them are showing an upward trajectory and Roadcheck Week is obviously having a decent influence here,” Strickland said. But he added that “I just don’t know if we can say that Roadcheck is necessarily the big catalyst for the freight market.” He noted that there was a similar increase last year, with Memorial Day also being a factor.

Mulvey said a difference from 2023 is that “the market is in a position where we’ve lost capacity over the last year.” When that occurs, he added, “it creates sensitivity because capacity is leaving the market, and it marks these little inputs that [are] much more impactful, especially Roadcheck.”

OTRI vs. pricing as a benchmark

Strickland noted that he had a long career in truck pricing. And while pricing indices are valuable, he favored the OTRI and similar capacity indices as a better indication of the state of the market. There’s too much human emotion in truck pricing, he said.

“Prices and dollars can be influenced by emotion,” Strickland said. Market dynamics can bring in “psychology.”

For example, Mulvey noted that trying to book capacity on a Friday before the weekend is always challenging. “I’ve heard the joke that if it’s on a Friday, rates are going to go up,” Mulvey said.

“Nobody wants to work on the weekend,” Strickland said. “So you’re going to pay for that premium.” Similarly, if a shipper or carrier is in price negotiations at the end of the day, “that extra effort requires knowledge.”

The spot market, according to Strickland, “has really become just an overly weighted wild west environment of desperation.” It’s used by carriers who need to keep their equipment running, which sometimes leads them to be less than operating costs, Strickland said.

Demand remains solid

Looking at the Outbound Tender Volume Index in SONAR, which measures demand for shipping capacity, “you would say that a pretty stable, decent growth in demand,” Strickland said. And the numbers would mean that “we shouldn’t be in a freight recession based on demand-side dynamics alone,” Strickland said, adding that tender volume is up about 9% from a year ago.”

The issue for carriers then remains the overhang in capacity, even after a steady decline in recent months. “It’s not that there’s not demand out there,” Mulvery said. “I think what gets lost sometimes is that the freight is spread out among many more operators.”