In some ways, the setup for carriers couldn’t be much more favorable. Despite tender volumes having declined nearly 10% since the start of the month, the current backdrop remains extremely strong. It seems freight markets are taking a breather after pushing to a YTD high to end the first quarter.
SONAR: OTVI.USA (Blue); ROTVI.USA (Orange)
I wouldn’t get used to it. The Reefer Outbound Tender Volume Index (ROTVI) has steadily fallen since its all-time high in early March, when winter weather sent reefer demand surging. But produce season is ramping up, and the combination of warmer weather and vaccines could offset the drag from falling grocery spend overall by consumers as they revert to restaurant spending. Grocery spend peaked in January, and restaurant spending was up more than 10% over 2019 in the latest week of data ending April 3, according to Bank of America.
In addition to reefer, many other catalysts drive freight volumes throughout the second quarter. Consumers continue to drive freight volumes throughout the country, with total card spending up 20% from 2019 last week. Bank of America estimates retail sales excluding autos increased a remarkable 11.1% seasonally adjusted month-over-month in March.
The ISM Purchasing Managers Index for the manufacturing sector rose to 64.7 in March, the highest reading since December 1983. The National Association of Home Builders/Wells Fargo Housing Market Index has declined since its all-time high in November but remains extremely high at 82.
The economic recovery paired with Americans still being unable to spend on big-ticket services has created a near-perfect backdrop for carriers in Q2. The Port Report, produced by the National Retail Federation and Hackett Associates, is calling for imports to “set records now into the summer” as consumers keep spending on goods.
The most recent stimulus round is providing a massive boost to consumers, who by and large are still stuck at home. Working from home has been a major success for millions of Americans, and people continue to spend on at-home upgrades like furniture and online electronics.
Service-based spending categories like airlines, lodging and restaurants all were positively impacted by the stimulus, but the five biggest growth segments were in goods. With the roaring consumer economy, blossoming industrial recovery, white-hot housing market and historically depleted inventories, there’s very little outside of severe inflation that could derail this trucking market. Thus, it seems there are too many catalysts for this lull to continue for long.
On a negative note, only six of the 15 major freight markets that we monitor as a broad, representative benchmark were positive on a week-over-week basis. This ratio decelerated meaningfully compared back to the stronger levels it has become accustomed to in recent months as the freight market rallies. The markets with the largest gains this week in OTVI.USA were Miami (7.56%), Houston (6.64%) and Chicago (1.04%). The markets with the largest declines this week in OTVI.USA were Savannah, Georgia (-8.73%), Cleveland (-6.07%) and Ontario, California (-5.10%).
Tender rejections hover near peak
In the last week of Q1, the Outbound Tender Reject Index (OTRI) jumped back toward its historical ceiling of 30% as shippers rushed to get freight out the doors. After topping out at 28.3% on March 28, the U.S. aggregate OTRI has declined to 25.6%. This is an extremely high level by any measure; carriers are still rejecting more than 1-in-4 electronic tenders at contract rates.
As produce season begins, the reefer capacity environment has rarely been tighter. The Reefer Outbound Tender Reject Index (ROTRI) is also just off an all-time high and currently reads 47%, indicating nearly half of all electronically tendered contract reefer loads are being rejected.
SONAR: ROTRI.USA (Orange): OTRI.USA (Blue)
Higher freight demand appears likely in the coming months, and there are no immediately visible signs of capacity relief. The port congestion has prompted retailers to seek alternative routes, which will benefit East Coast ports, but with carriers optimized for LA/Long Beach, it may create lasting volatility. And with vessels arriving from the Suez blockage, bunching on the East Coast will likely cause even more disruptions at ports.
For more information on Passport Research, please contact sholm@freightwaves.com.
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