This Week’s DHL Supply Chain/FreightWaves Pricing Power Index: 35 (Shippers)
Last Week’s DHL Supply Chain/FreightWaves Pricing Power Index: 30 (Shippers)
Three-Month DHL Supply Chain/FreightWaves Pricing Power Index Outlook: 55 (Carriers)
The trucking industry operates in a market based on real-time demand and supply. When demand is higher than capacity, carriers gain negotiating power for rates. When supply is higher than demand, shippers have the advantage.
The DHL Supply Chain/FreightWaves Pricing Power Index uses the analytics and data contained in FreightWaves SONAR to analyze the market and estimate the negotiating power for rates between shippers and carriers.
The Pricing Power Index is based on the following indicators:
Load volumes: Momentum and trend neutral
The Outbound Tender Volume Index (OTVI.USA) has rebounded from the holiday drop and stabilized above the 10,000 mark at 10,373.89. Now that turkey day disruptions in our index are behind us, yearly comparables are back in play. In 2019, freight volumes fell off significantly soon after the Thanksgiving holiday. Unlike last year, volumes seem to be holding steady longer before the Christmas drawdown.
It is important to remember not only the late Thanksgiving but the early Chinese New Year, both of which may be slightly inflating OTVI. Nonetheless, the strong Black Friday/Cyber Monday sales and a confident American consumer make us believe this holiday season will be good for everyone.
SONAR: OTVI.USA
Tender rejections: Absolute levels positive for shippers; short- and long-term trends positive for carriers
Outbound tender rejections have stayed well above an established 6% resistance band for nearly a month now. Currently, OTRI sits at 8.25% and more than 35% above its 60-day moving average. It is common for rejection rates to sustain higher-than-normal levels between Thanksgiving and Christmas, but we felt it was entirely possible in this loose capacity environment that OTRI could tumble back toward its trailing six-month average of 5.22%. If OTRI can hold in the 6-10% range into the new year, we feel the capacity picture will be much brighter for the carriers in 2020.
SONAR: MAPS
Spot rates: Absolute level positive for shippers; momentum positive for carriers
Spot rates climbed again this week by 3% to $1.57 per mile from $1.52 last week as measured by the DAT dry van national average. Spot rates have been on a strong upward trajectory since before the Thanksgiving holiday — up nearly 10% over the past three weeks. The elevated rejection rates and steady holding volumes are signs of a strengthening spot market. Spot rates have also made a higher low recently at $1.49 per mile, a solid signal that the newfound uptrend is intact.
Economic stats: Positive momentum for shippers
The University of Michigan’s Index of Consumer Sentiment came in at 96.8 for November, up from 95.5 last month and above consensus expectations for 94.9. Such a high level of consumer optimism has not been seen for 20 years since the period between 1998-2000, when the index remained above 100 for three years straight. Despite such high levels of consumer sentiment not seen since the economy was booming during the Clinton administration, a sharp partisan divide remains, with Democratic consumers more gloomy about economic prospects. On the other hand, another popular measure of consumer confidence, the Conference Board’s consumer confidence measure, missed consensus, declined for the fourth consecutive month and is pointing to solid, but slower, fourth-quarter growth.
The primary direct impact of continued high consumer confidence will be on retail sales (RESL.USA) and outbound tender volumes (OTVI.USA). Strong consumer spending will continue to enable volumes to grow by positive low single digits (or better) and, if excess capacity wanes, there is a possibility of higher spot rates (DATVF.VNU) on the horizon in 2020.
Transportation stock indices: Absolute levels positive for shippers; momentum positive for carriers
The market is once again sanguine on the transportation sector, even in the face of widespread disappointing third-quarter earnings.
Following last week’s ugly week, our transportation indices bounced back nicely this week. Our proprietary truckload, less-than-truckload (LTL), logistics and parcel stock indices rose by 1.8%, 2.6%, 0.4% and 1.4%, respectively. Transportation equities significantly outperformed the S&P 500, which rose by 0.7% 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.