The Outbound Tender Volume Index (OTVI) climbed another 1.4% this week to a new all-time high of 16,053. OTVI has posted a string of consecutive all-time highs for many weeks now. It is important to note that OTVI does include rejected contract load tenders, so the true organic growth of load volumes is significantly lower than the indexed reading as we explain later. However, this does not mean the index is not directionally accurate or not indicative of the overall strength in the freight market. However, the rate of volume acceleration has begun to slow.
To account for the high level of rejected tenders in our Outbound Tender Volume Index, a new metric, a proxy index for accepted tenders, has been calculated. Using this correction, volumes are running up about 19% year-over-year and are at a three-year high. Carriers are rejecting one in four contracted load tenders, and spot rates have pushed north of $2.75 per mile on a national basis.
The extremely high level of tender rejections is distorting the true volume level. To account for that, one can use this simple formula to calculate the indexed level of accepted tenders as a proxy (note this is not the actual number of accepted tenders, which is proprietary): OTVI * (1-OTRI) for any given day. We also note that we chose to use Thursday’s readings to remove Labor Day-related distortions.
16,128 * (1 – .25) = 12,096 accepted load proxy index for Sept. 2, 2020
10,660 * (1 – .046) = 10,127 accepted load proxy index for Sept. 2, 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.
Fortunately, Hurricane Laura did not create the major regional disruption event that many thought was possible. Also, Laura missed major population centers in Houston and New Orleans. However, the waters and atmosphere of the Atlantic and Gulf of Mexico are primed for storms at the height of hurricane season. FreightWaves will be closely monitoring any developments in the coming weeks.
On a positive note, eight of the 15 major freight markets FreightWaves tracks were positive on a week-over-week basis. This ratio has been consistently high in recent weeks so breadth did see a slight deterioration this week. The markets with the largest gains this week in OTVI.USA were Fresno, California (22.51%), Los Angeles (8.89%) and Indianapolis (7.33%). The markets with the largest declines this week in OTVI.USA were Miami (-10.49%), Chicago (-3.45%) and Laredo, Texas (-3.25%).
Tender rejections remain elevated
Demand is simply outstripping capacity right now, and nothing appears to be pointing to that changing anytime soon. Accepted tenders remain at a historically high level (despite high tender rejections), and carriers are exercising their options in searching for the highest rates and best loads. In doing so, carriers are being selective — only accepting three of every four tenders. The Outbound Tender Reject Index (OTRI) climbed slightly over the course of the past week, up 1.1% to 25.62%.
The demand throughput has carriers sitting comfortably rebidding or rejecting loads. OTRI at 25% indicates one in four contracted loads is being rejected across the country. This is historically an extremely high rate and is approaching the historical upper bound of the index. At this high a level of tender rejections, market dynamics can shift as pressure mounts to see contracted freight renegotiated at higher rates (thus leading to lower rejection rates). The managing director of a large, national freight brokerage confirmed to us that the market has already reached this level and renegotiations have begun. He believes this rebidding season will be the toughest for shippers (and brokers) in some time.
There could be some normalizing after the Labor Day holiday, but there are no signs pointing to a major freight slowdown anytime soon. Consumer demand remains elevated on a year-over-year basis, and waning services spending has simply shifted to greater demand for goods. This has benefited both shippers and carriers to this point, but capacity constraints are causing transportation costs to surge.
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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