Carriers hesitant to give any pricing power back to shippers

The Pricing Power Index is based on the following indicators:

Tender volumes give back some of last week’s gain

Tender volumes took a slight breather over the past week, largely due to the Martin Luther King Jr. Day holiday to kick off the week. Every year around MLK Day tender volumes suffer a slight dip, but not as extreme as other holidays.

Over the past week, the Outbound Tender Volume Index (OTVI) fell by 2.58% after the sharp rebound last week. OTVI has actually held up better during the MLK Day-affected week than the two previous years, falling 4.58% in 2021 and 3.68% in 2020. OTVI continues to outperform 2021 levels, currently up nearly 5% y/y.

Warehousing space is effectively sold out, especially on the West Coast. Prologis (NYSE: PLD) reported full-year earnings earlier this week and said U.S. occupancy was 98.2%. In Southern California, which is roughly 14% of Prologis’ available square footage, 99.4% of available space is leased. Ultimately, the limited warehousing space in Southern California is going to be a driver for freight demand in the market as shippers will have to move freight to warehousing space in secondary and tertiary markets. 

Accepted tender volumes over the past week underperformed OTVI as the Outbound Tender Reject Index (OTRI) did rise on a national level. Accepted volumes are 3.4% lower week-over-week (w/w) and down 1.25% over the past month. However, accepted tender volumes continue to outperform year-ago levels, currently running roughly 5% higher than 2021 levels.

With volumes falling as a result of MLK Day, tender volumes across the majority of the country were lower w/w. Of the 135 markets, just 44 reported weekly increases. The largest market in the country, Ontario, California, did report a weekly decline as tender volumes fell 1.04%, outperforming the overall index.

Markets on the East Coast held up better than the West Coast counterparts. Savannah, Georgia, in particular, had a strong week as tender volumes increased by 11.23% w/w, the 11th largest increase across the country. Neighboring markets Charleston, South Carolina, and Jacksonville, Florida, reported moderate increases w/w, with volumes increasing 0.26% and 0.62%, respectively.

By mode: The Reefer Outbound Tender Volume Index (ROTVI) continued to climb over the past week, increasing another 2% w/w. Reefer volumes benefited from winter weather hitting the upper Midwest as well as much of the East Coast as shippers have had to shift modes to protect goods from freezing. Reefer volumes have closed to the gap with year-ago levels, now just 0.6% below 2021 levels.

The Van Outbound Volume Index (VOTVI) did take a slight step backward this week, falling by 3.17%. Given that the overall index fell by over 2.5% w/w, van volumes were likely to fall by a larger percentage, since van volumes are a larger percentage of overall volumes than reefer volumes. Van volumes continue to outperform year-ago levels, running up over 3% y/y. 

Rising contract rates have driven improved compliance in 2022

Shippers likely aren’t getting the compliance levels they expected after contract rates have increased by over 20% in the past year. Carriers are still rejecting 1-in-5 loads, opting to play in the spot market.

Over the past week, OTRI, which measures relative capacity in the market, increased by 68 basis points (bps), to 21.58%. OTRI is now just 35 bps below year-ago levels, the narrowest the gap has been since mid-August.

The rise in tender rejection rates is not a seasonal pattern and signals how fragile the capacity situation in the market currently is. In 2021, a winter storm crippled an improving marketplace, sending rejection rates from ~21% to ~27% in just a week. While rejection rates have improved back to ~21% over the course of the past nine months, another event like that could send rejection rates soaring again, placing further pressure on already near record-high rates.

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.

Of the 135 markets, 90 reported higher rejection rates over the past week as winter weather starved capacity in the largest markets in the Northeast. 

Harrisburg, Pennsylvania, which is one of the largest markets in the country, experienced rejection rates increase by 322 bps over the past week. Additionally, Elizabeth, New Jersey, which houses the Port of New York/New Jersey, experienced a dramatic increase in rejection rates over the past week, rising 318 bps w/w.

Capacity continues to enter Southern California as freight demand in the region remains quite strong. Rejection rates fell by 174 bps w/w in Ontario as carriers have made their way back to the West Coast.

By mode: Both reefer and van capacity conditions over the past week were relatively unchanged. Both the Reefer Outbound Tender Reject Index (ROTRI) and the Van Outbound Tender Reject Index (VOTRI) remain elevated, indicating that difficult capacity conditions continue to plague the market. Over the past week, VOTRI increased by 66 bps to 20.7% and ROTRI was flat at 38.75%.

The flatbed market had a dramatic change to capacity over the past week. The Flatbed Outbound Tender Reject Index (FOTRI) increased by 678 bps w/w, bringing the rejection rate to 33.26%. The national flatbed rejection rate is just 200 bps off the all-time high set just a month ago. Flatbed rejection rates are over 2,100 bps higher than year-ago levels.

Spot rates dip after capacity returned to the road last week

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, fell somewhat as capacity returned to the market. The national spot rate, after reaching an all-time high of $3.83 last week, cooled to $3.79 per mile, which includes fuel surcharges and other accessorials. The drop in spot rates follows the falling rejection rates last week, which hovered around 21%.

Of the 102 lanes from Truckstop.com’s load board, 42 reported spot rate increases last week. Rates on lanes coming out of the mid-Atlantic, particularly outbound Pennsylvania, rose in response to anticipated inclement weather and heightened freight volume.

Meanwhile, contract rates held firm at $2.80 per mile this past week, maintaining their highest level in a dataset that has tracked rates since January 2017. Contract rates are reported on a two-week lag. With carriers still rejecting 1-in-5 loads, carriers are continuing to push for higher contract rates into 2022.

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 22% y/y.

FreightWaves’ Trusted Rate Assessment Consortium (TRAC) spot rate from Los Angeles to Dallas continues to fall, reaching an average of $3.84 per mile. In the window between Christmas and New Year’s Day, the TRAC rate in this lane vaulted over $4 per mile but has since stabilized around the current rate just two weeks into 2022 as capacity returns to Southern California.

FreightWaves’ TRAC spot rate from Atlanta to Philadelphia has also returned to sub-$4 levels, at a current rate of $3.94 per mile. Rejection rates and tender volume for outbound Pennsylvania have risen sharply this past week, attracting carriers to the region with the promise of higher rates. This lane, however, is routed through the path of the incoming Winter Storm Jasper, so carriers will have to assess whether the risk is outweighed by the potential rewards.

Winter Storm Jasper, which is expected to bring ice and snow to Texas and the southern mid-Atlantic, might maintain holiday-level rates on lanes in those regions. Elsewhere, however, spot rates should lower as capacity continues to be added to the market in 2022. Despite this seasonal trend, a return to pre-pandemic rates should not be expected anytime soon, as consumer demand is still elevated and congestion at the ports has yet to be cleared.

For more information on the FreightWaves Freight Intel Group, please contact Kevin Hill at khill@freightwaves.com or Tony Mulvey at tmulvey@freightwaves.com.