This week’s DHL Supply Chain Pricing Power Index: 85 (Carriers)
Last week’s DHL Supply Chain Pricing Power Index: 85 (Carriers)
Three-month DHL Supply Chain Pricing Power Index Outlook: 80 (Carriers)
The DHL Supply Chain Pricing Power Index uses the analytics and data in FreightWaves SONAR to analyze the market and estimate the negotiating power for rates between shippers and carriers.
Accepted freight tender volumes are accelerating on a year-over-year basis. While tender rejections decelerated this week, they remain at historically high levels. We have gotten word that carriers are holding capacity until the end of the day before auctioning it to the highest bidder. Rates are nearing $3 per mile on a national level, and rates are already above that in 51 of 100 Truckstop.com lane pairings.
The Pricing Power Index is based on the following indicators:
Load volumes: Absolute levels and momentum positive for carriers
The Outbound Tender Volume Index (OTVI) has normalized after a week of distortion due to Labor Day. Freight volumes are following a typical post-Labor Day pattern, but at a much higher level. As we have noted in previous weeks, we must account for the extremely high level of rejected tenders in OTVI by calculating the accepted tender volume index.
To remedy the distortion, we can use this simple formula to calculate the level of accepted tenders: OTVI * (1-OTRI) for any given day.
15,587 * (1 – .24) = 11,846 accepted loads for Sept. 16, 2020
10,552 * (1 – .059) = 9,929 accepted loads for Sept. 16, 2019
Using this metric to control for the high level of rejected tenders allows us to get a more accurate understanding of the true demand level. This does not mean demand is not at a historically high level — it is. With this metric, trucking volumes (van, reefer, flatbed) are running up over 19% year-over-year. This is an acceleration of 4% over last week. In 2019, there was a considerable freight push throughout the month of September, so yearly comparisons may get tougher in the coming weeks. That said, we do not expect any meaningful deceleration during this period.
We expected volumes to bounce back quickly after the holiday distortion. Our expectations have not changed in recent weeks and we still believe the rest of the year is bright for the freight market. Retail inventories are down 12% year-over-year, while sales are up 11%. The possibility of another round of stimulus before the election would aid this argument. While consumer confidence has faltered, spending is remaining strong given the economic backdrop. These factors lead us to believe that freight volumes could end with a massive bang.
SONAR: OTVI.USA (2020 – Blue; 2019 – Orange; 2018 – Green)
Tender rejections: Absolute levels and momentum positive for carriers
We have written in recent weeks that we believe the upper bound of the Outbound Tender Reject Index (OTRI) is roughly 25%. We very rarely see OTRI reach these levels, and when it does, it never stays above 25% for long. In fact, the longest period above 25% came in the spring of 2018 (a very hectic freight environment) with a duration of roughly three weeks. This most recent journey above 25% is the second-longest of any in the index’s three-year history.
While OTRI has fallen 8% off the holiday-week peak, it remains at a remarkably high level at 24.66%. This indicates that nearly one in four loads is still being rejected at contracted rates across the country. Jordan Dewart, managing director of Redwood Mexico, stated in a recent webinar that he is “seeing carriers come back with a vengeance” after living through a depressed 2019 market. He is seeing carriers holding capacity until the end of the day and auctioning it to the highest bidder. This is why we believe we are at or past the upper bound of tender rejections. At this point, shippers are either paying whatever is needed to move their freight, or rebidding and buying up large chunks of capacity at higher contract rates through the end of the year.
Demand is simply outstripping capacity right now, and nothing points to that changing anytime soon. Accepted tenders remain at a historically high level, and carriers are exercising their options in searching for the highest rates and best loads. In doing so, carriers are being selective — accepting one of every four tenders.
SONAR: OTRI.USA (2020 – Blue; 2019 – Green; 2018 – Orange)
Spot rates: Absolute levels and momentum positive for carriers
Spot rates surged another 11% in the week ending Sept. 13, after rising 10% in the week preceding. This brings the national average to $2.95 per mile, according to Truckstop.com. This marks another consecutive week of new index series highs. Of the 100 lane pairings in SONAR, spot rates are above $3 a mile in 51. There are far more lanes in the red this week, but that is due to the holiday prices that were paid in the week prior (Labor Day).
SONAR: TSTOPVR
On a national level, rates are now up 28% year-over-year. Rates have been positive on a yearly basis since mid-June but have recently accelerated as carriers have been rejecting tenders at 20%-plus rates. The yearly comps do not get tougher until the typical holiday peak season beginning in November. Until then, we expect to see rates running 20%-25% up year-over-year.
SONAR: TSTOPVR.USA (2020 – Blue; 2019 – Green)
Economic stats: Momentum and absolute level neutral
Several economic releases this week are worth noting.
Weekly jobless claims were released Thursday and give us one of the best close-to-real-time indicators of the overall economy.
This week’s jobs news reflects the improved momentum and change in tone we have seen in recent weeks and months. Initial jobless claims came in at 860,000 last week, which was better than consensus expectations of 875,000 and continues the multiweek downward trend. This week’s 860,000 claims are down from last week’s 893,000, and the four-week moving average continues to trend lower at 912,000 compared to 973,000 last week. Jobless claims have now fallen in 21 of the past 25 weeks dating back to the peak weekly jobless claims number from late March. Continuing claims (a rough proxy for unemployment) fell by more than 900,000 to 12.6 million.
Initial jobless claims (weekly in 2020)
Source: CNBC, U.S. Department of Labor
Turning to consumer spending as measured by Bank of America weekly card (both debit and credit) spending data, total card spending in the latest week was down 1.1% year-over-year. This is slightly below the recent flattish range but well off the ~40% declines from late March and early April. There was a material giveback this week after an artificially juiced previous week due to shifted Labor Day timing; comparisons should normalize next week. The four-week year-over-year moving average is 1.8%. As we usually note, keep in mind there is a beneficial mix shift from cash to debit ongoing that is somewhat inflating these numbers. One can tell this is the case from the fact that debit card spending is currently running up 5% year-over-year and far outpacing credit card spending, which is down 8% year-over-year.
The main takeaways this week are that Bank of America is seeing regional differences in spending, with the Midwest (specifically Detroit) exhibiting the most strength (which could suggest the nascent U.S. industrial recovery is gaining steam), while large Western cities like Portland, San Francisco and Seattle are experiencing the weakest (and negative) year-over-year spending growth. Restaurant and bar spending in earlier reopening states like Georgia and Texas have resumed higher relative growth after plummeting with COVID-19 outbreaks earlier in the summer. Furthermore, curiously, some of the hardest-hit and most exposed industries in the economy, such as gym spending, are in the very early stages of recovery with spending now hitting 40% of pre-COVID levels.
By category, online electronics (up 85% year-over-year this week) and online retail (up 60%) continue to be the standout performers. Other strong categories include home improvement and furniture. Grocery has reaccelerated back to 11% year-over-year. Restaurant and bar spending has staged a huge comeback and is now down just 7% year-over-year. Brick-and-mortar retail spending has improved dramatically as most states reopen and was -3% year-over-year this week. Finally, airlines, lodging and entertainment continue to be the worst-performing categories by far, but lodging is way up off the bottom and appears to have gained momentum in recent weeks. Airlines and entertainment are now declining about 70% year-over-year compared to the trough of down 90%-100% in early April.
Card spending by American consumers has a strong correlation with truckload volumes, so we will continue to monitor this data closely going forward.
Source: Bank of America Merrill Lynch
Transportation stock indices: Absolute levels and momentum positive for carriers
It was a mixed week for our transportation indices following mostly strong weeks over the past couple of months. Logistics was the best performer at 2.3%, and LTL was the worst performer at -2.5% this week.
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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