Carriers not giving up pricing power during the holiday season

The Pricing Power Index is based on the following indicators:

Tender volumes following 2019 trends, just 40% higher

Tender volumes are following a similar trend to what occurred in 2019. The Outbound Tender Volume Index (OTVI), a measure of freight demand through shippers’ requests for capacity, has fallen below the 15,000 level, dropping nearly 2% over the past week.

The comps have improved as all of the holiday noise has been erased, but this will only be the case for the next week and a half as the Christmas holiday is quickly approaching. There will be a significant dip in OTVI due to the Christmas and New Year’s holidays, but based on how volumes haven’t fallen as fast as they have in previous years, there should be a nice recovery to begin the year.

OTVI, which includes both accepted and rejected freight volumes, continues to underperform 2020 levels, though that gap has gotten extremely narrow over the past two weeks. Adjusting OTVI by the Outbound Tender Reject Index (OTRI), accepted tender volumes are up nearly 6% y/y.

Volume levels continue to move in a downward trend around the vast majority of the country. Of the 135 freight markets tracked by FreightWaves SONAR, just 54 reported weekly increases.

Ontario, California, the largest market in the country, experienced a 4% drop in tender volumes over the past week. The market did experience a slight hiccup in the Headhaul Index (HAUL), the difference between outbound and inbound volumes, falling by 6% w/w, signaling that capacity may loosen in the market in the coming days.

By mode: Reefer tender volumes as measured by the Reefer Outbound Tender Volume Index (ROTVI) fell by 2.6% w/w. Over the past month, reefer tender volumes have fallen by over 5% and remain below year-ago levels, currently down 3.71%.

On the dry van side of the market, volumes held up slightly better than reefer. The Van Outbound Tender Volume Index (VOTVI) fell by 1.4% w/w. Van volumes are down roughly the same percentage over the past month and should hold up better in the coming weeks than the reefer market.

Rejection rates trending sideways ahead of the holiday season

While OTVI is tracking closer to what happened in 2019 (at the higher levels), OTRI is setting a newer trend. OTRI has been trending sideways since the week following Thanksgiving as drivers have returned to the road. There will be the traditional uptick around the Christmas and New Year’s holidays like there traditionally is as drivers take time off the road during this period.

Over the past week, the national rejection rate is down just 5 basis points to 19.16%. Even with the downward trend established back in March, relative capacity remains extremely tight. Rejection rates are 566 bps below where they were a year ago, but contract rates have increased by more than 20% in order to drive carrier compliance. 

The trouble is that capacity entering the market hasn’t been able to keep up with freight demand, thus higher rates haven’t driven rejection rates back down to more “normal” levels. Add in various other constraints in the transportation market and it leads to extremely tight capacity persisting for the better part of 18 months.

Why has there not been a surge in capacity flooding the market? 

The barriers to entry are arguably higher than they have been, especially for smaller carriers to add to their fleets through the used equipment market. Used truck prices have surged over the past year as OEMs have struggled to produce new equipment amid record new truck orders. Why is this important? Large carriers are holding onto equipment longer, thus starving the used equipment market of supply while also being hit on the elevated demand side. This causes an upward spiral in used equipment prices.

The number of markets that tightened over the past week is roughly equal to the number that loosened. Of the 135 markets, 66 experienced rejection rates move higher this week.

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. 

Houston is tightening the fastest of any market of similar size. Over the past week, the rejection rate in Houston has increased by 467 basis points to 13.99%. The market is still loose compared to the overall country, but the recent tightening and load imbalance signal that upward move in rejection rates may be short-lived.

By mode: The reefer market has started to tighten. Over the past week, the Reefer Outbound Tender Reject Index (ROTRI), a measure of relative reefer capacity, increased by 89 bps, the largest w/w increase in nearly a month.

Capacity in the dry van market did tighten over the past week, just not to the extreme that the reefer market did. The Van Outbound Tender Reject Index (VOTRI) increased by 24 bps to 18.44%.

The flatbed market was the only equipment type to experience any loosening over the past week. The Flatbed Outbound Tender Reject Index (FOTRI) fell by 62 bps to 27.36%. Even with the pullback in rejections, the flatbed market is still much tighter than it was a year ago with FOTRI up 1,100 bps y/y.

Spot rates give back all of last week’s increases

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, took a breather after two consecutive weeks of increasing. The national spot rate fell by 9 cents per mile to $3.47, including fuel surcharge and other accessorials, erasing all of the previous week’s increase. Even with the pullback, Truckstop.com’s national spot rate is nearly 20% y/y.

Of the 102 lanes from Truckstop.com’s load board, 75 reported decreases last week. Inbound Los Angeles took a step lower last week, with the southbound lane, Portland, Oregon, to Los Angeles falling by 52 cents per mile, to $2.07, the largest decrease in the dataset. The pullback in rates as drivers returned to the road post-Thanksgiving was expected, especially as carriers try to take advantage of the elevated outbound LA rates.

Contract rates took a slight step up, rising 3 cents per mile to $2.73. Since contract rates are reported on a two-week lag, current contract rates are feeling the effects of Thanksgiving, which placed upward pressure on them. Expect that there will be some upward pressure on rates leading into the first quarter of 2022, likely testing the all-time high of $2.77/mi.

Contract rates, which are the base linehaul rate excluding fuel surcharges and other accessorials that are included in spot rates, have closed the gap with spot rates significantly over the past year. Contract rates are outperforming spot rates, continuing to run nearly 18% higher than in 2020.

FreightWaves’ Trusted Rate Assessment Consortium (TRAC) spot rate from Los Angeles to Dallas fell over the past week. The FreightWaves TRAC rate in this dense lane fell by 3 cents per mile to $4.04. Rates are still up 3% since the beginning of the quarter. Expect some upward pressure throughout the rest of the week as volume imbalances will likely tighten capacity in Southern California in the coming days.

FreightWaves’ TRAC spot rate from Atlanta to Philadelphia gave back some of last week’s increase. The FreightWaves TRAC rate decreased by 3 cents per mile to $3.76 over the past week, just off the three-month high set last week.

Ultimately, some of the inflationary pressures on rates have alleviated themselves as capacity has returned to the market. Pressure remains on contract rates to move higher in 2022, due to the elevated rejection rates, but the move higher may not be as pronounced as it was in 2021. Either way, carriers still hold most of the pricing power in the market, though shippers are slowly clawing it back in their favor.

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

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