Consumers take a breather, freight volumes push higher

The Pricing Power Index is based on the following indicators:

Load volumes: Absolute levels positive for carriers, momentum neutral

In last week’s edition, I wrote that the lull didn’t have much staying power and that the market would soon ramp up given produce season beginning, vaccine progress and continued inventory restocking on strong consumer goods demand. Tender volumes did turn back positive this week, reversing a multiweek slide, but it was not due to reefer demand. 

The Reefer Outbound Tender Volume Index (ROTVI) fell another 4% this week on its descent from an all-time high in early March in the wake of the polar vortex. Due to surging grocery demand last year, reefer volumes are negative on a year-over-year basis when adjusting for the obscene level of reefer tender rejections. However, compared to 2019, ROTVI is up ~14% after adjusting. 

I don’t expect to see this downward trend hold much longer. The one major headwind for reefer demand is consumers reverting back to restaurant spending while paring back grocery spend. Indeed, restaurants move a significant amount of reefer volume, but just think about the amount of food moved for $100 in a restaurant vs. $100 in a grocery store. This has been occurring since January when grocery spend peaked, and is certainly playing a role in the down trend. Restaurant spend across the nation is actually up in the mid single digits over 2019 in the most recent week of data from Bank of America. 

That said, produce season is still in its early stages of the cycle, and the summer is historically a boon for reefer volumes due to produce and drink consumption. And it could just be me, but I think this summer will be a record year for drink consumption. 

The Bank of America Securities team titled this week’s consumer spending report “Consumer takes a breather,” while also reporting the total card spending was up 14% over 2019 in the week ending April 10. The marginal propensity to consume for this stimulus has been lower than the prior two, and I believe this is because Americans are gearing up for travel. The good news is the savings rate is so high, Americans have a war chest unlike in any recent period. And, inventories remain depleted across many segments, so the freight industry won’t feel the direct brunt of any shift back to services anytime soon. 

Tender rejections: Absolute levels positive for carriers, momentum neutral

The Outbound Tender Reject Index (OTRI) for the nation as a whole showed very little volatility this week, basically walking sideways at ~25%. The index has been at this level since after the winter storms disrupted freight networks across the country. Geographically, there was some volatility on the market level. Every market west of Colorado saw rejection rates rise this week, while carriers in most Midwestern and Rust Belt regions rejected less freight this week than last. 

Capacity in every mode of truck transportation is difficult to source currently, but reefer stands out from the pack. The Reefer Outbound Tender Reject Index has declined since the first week of March but remains just under 47%, meaning reefer carriers are rejecting nearly half of all electronically tendered loads and contract rates. 

I anticipate higher freight demand in the coming months, and there are no immediately visible signs of capacity relief. 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. 

Reject rates may moderate from here, not because material capacity is being added but rather because contract rates are being marked up toward spot, leaving carriers with less desire to test the spot market. There are events that should bring more drivers to market, including the easing of social distancing and the tempering of additional government unemployment benefits. But the housing market is white-hot, which historically has detracted potential drivers from entering the trucking market.  The Drug & Alcohol Clearinghouse continues to take thousands of drivers off the road. And the last I’ve heard, driver training schools remain hampered by COVID restrictions. 

Spot rates: Absolute level and momentum positive for carriers

The Truckstop.com national dry van spot rate average snapped a multiweek positive streak, falling to $3.13/mile inclusive of fuel. The 5-cent-per-mile decline was not insignificant, but rates remain very high from a historical standpoint. Regionally, the tree map is bloody, with more than two-thirds of the 100 lane pairings available in SONAR negative this week. 

Of the different trailer types, reefer rates declined the most this week, but off a higher base. The Truckstop.com reefer rate per mile sits at $3.57, inclusive of fuel, down nearly 10% off its recent high. 

Contract rates are quickly ticking up toward spot rates. Spot rates will stay elevated if the current environment of high demand and relatively scarce capacity remains. Catalysts including new truck orders and the ending of social distancing measures will add capacity, but the questions linger: when and how much? For now, carrier networks remain strained with this level of demand, and I anticipate demand will increase from here when the produce season begins in earnest and more regional economies reopen. 

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. The data this week was excellent. Initial jobless claims tumbled 193,000 this week to 576,000, the lowest point since the pandemic began. 

Last week’s jobless claims disappointed to the upside, and that mark has been adjusted even further up to 769.000. But this week was strong for the labor market, with initial claims plummeting and continuing claims (a rough proxy for unemployment) staying fairly steady from a pandemic low last week. 

The latest unemployment report from March was very encouraging and blew away expectations (the U.S. economy added 916,000  jobs in March) and suggests the economic recovery is gaining steam from an employment perspective. Meanwhile, the unemployment rate declined to 6%.

Initial jobless claims (weekly in 2020-21)

Turning to consumer spending as measured by Bank of America weekly card (both debit and credit) spending data, total card spending (TCS) in the latest week slowed from the torrid pace we’ve seen over the past few weeks. TCS came in 14% above 2019 for the week ending April 10. 

As we usually note, there has been an ongoing beneficial mix shift from cash to debit that is somewhat inflating these numbers. One can typically tell this is the case because debit card spending has been far outpacing credit card spending for the past year. But beginning last week and continuing this week, Americans grew credit card spending more than debit, with debit and credit card spending up 57% and 63%, respectively. Debit spending is still outpacing credit on a two-year basis materially. After consistently running deeply negative for months and being down precipitously since April 2020, credit card spending is clearly booming again.

The main takeaways this week are that the boost from stimulus is fading, not because consumers burned through it quickly but rather because they’re spending it at a slower pace than the first two rounds. According to Bank of America, the marginal propensity to consume for the latest round is the lowest to date. Meaning, Americans are saving more of this round than previously. If I had to guess, the reason is people are gearing up to travel. Americans have been spending much more on clothing and apparel over the past 12 weeks, and survey data from Jeffries and Morgan Stanley suggest a generational release of travel demand in the back half of the year if vaccine progress powers ahead. 

Bank of America notes a reopening boost is occurring across the country. The team is seeing support in the services sector from reopening, with restaurant spending rapidly recovering. Also, there has been an acceleration in entertainment services spending in regions where restrictions are easing and a drop in the online share of spending for groceries and clothing. 

We have been noting that we are expecting a near-complete reversal and decisive change in terms of the winning and losing categories from a year-over-year growth perspective once a large number of Americans are vaccinated. However, at this point, the COVID winners and stay-at-home beneficiaries still haven’t dropped off much because overall spending is so strong, but previously weak categories are surging. 

Card spending by American consumers has a strong correlation with truckload volumes, so we will continue to monitor this data closely going forward.

Transportation stock indices: Absolute levels and momentum positive for carriers

It was another solid week overall for our transportation indexes. LTL was the best performer at 4.8%, while truckload was the worst at 0.4%.

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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