Since July 17, a curious trend has developed in American freight markets: while the national freight market has reached a calm equilibrium, with turndowns gradually deteriorating (OTRI.USA), Chicago’s rate of tender rejections (OTRI.CHI) has climbed, diverging from the rest of the country.
Turndowns out of Chicago have climbed 11.65% in the past month to 24.15% of all tendered shipments, while in the same period, the national average fell from about 21% to 17.31%.
Crucially, the accelerated rate of Chicago tender rejections does not appear to be related to the overall volume of tendered shipments in that market (OTVI.CHI), which has experienced some volatility, but is still down -1.7% since July 17. So the explanation does not appear to be that a sudden surge of shipments exceeding capacity drove up the turndown rate. Furthermore, the inbound tender rejection for Chicago (ITRI.CHI) continues to fall, meaning that trucks are more and more willing to enter that market. That fits with our picture of Chicago’s relative tightness, but also means that there should be plenty of trucking capacity to move flat volumes in that market.
We have seen indications in SONAR data that other regional markets may be pulling capacity out of Chicago. Volumes out of Milwaukee have surged since August 2 more than 13%, and Philadelphia outbound shipments have increased 10% since July 27.
Meanwhile, the reefer market in St. Louis has tightened considerably, pulling reefer turndowns from 28.85% up to 44.09% since August 6. We don’t have great visibility into which particular shipper is sucking up reefer capacity, but we have a hunch that it’s Anheuser-Busch, whose largest brewery is located in St. Louis. Beer ships one of two ways: for longer hauls during the day, or multi-drops, reefer units are used, set between 60 and 65 degrees Fahrenheit. Dry vans can typically be used to run beer at night, especially if it’s already packaged, because cases are less vulnerable to temperature shock than kegs. St. Louis experienced a bit of a heat wave leading up to August 6; but what’s important here are not the daily highs (90+ degrees), but the daily lows. The historical average daily low for St. Louis from July 31 to August 7 is about 66 degrees, right at the limit of the range where beer can be shipped by dry van, but the actual lows during that period moved up from about 62 degrees to 72 degrees, making running beer by dry van at night a no-go. Shippers moving temperature-controlled freight–like beer–had to double-up on their reefers, spiking turndowns.
Analysts in the rail community have spoken to FreightWaves about a lack of east-bound intermodal capacity from the West Coast and an increasingly intensive use of drayage equipment in Chicago specifically. An analyst told us that there is not really any spare intermodal capacity that the railroads would use to absorb freight from truckload; since utilization is so high, we’d expect intermodal hubs like Chicago to experience that tightness in both rail and trucking.
There’s support for the intermodal tightness thesis in tracking DAT trucking spot rates on lanes that parallel heavy rail freight flows. The seven day moving average for a dry van going from Chicago to Dallas (a lane covered by BNSF and Union Pacific) at $1.96 net of fuel, is the highest it’s been since March. From Chicago to Allentown, PA, an old industrial hub and important freight market nearly equidistant from Philadelphia and New York, a dry van brings in $2.90 per mile, net of fuel, which is the highest that lane has been since January, when it was an astonishing $3.31 excluding fuel surcharges. The Chicago-Allentown lane parallels the Norfolk Southern rail network.
In other words, trucking lanes leaving Chicago which also parallel major railroad lanes are running hotter than usual, supporting the thesis that Chicago’s turndown rate is being pumped by intermodal capacity tightness. This dynamic should intensify as the fall shipping season begins and inbound container volumes reach their peak.