The freight market continued to cool this week ahead of what we expect to be a strong holiday season. The Outbound Tender Volume Index (OTVI) has been oscillating at a very high level since Labor Day; this week it rose 3% from last week.
While freight market variables have eased since Oct. 1 (volumes, rejections and spot rates are all down but only slightly), each has come down from near-historic highs. As the Passport team noted in its most recent trucking markets report, “We believe this period is the ‘calm’ before the storm. We put ‘calm’ in scare quotes because of course the current market is anything but calm. In a normal year, a national tender rejection rate of 24.7% would imply utter chaos in routing guides and load boards. But in 2020, those conditions have persisted for nearly two months, since the beginning of September.”
The industry has become accustomed to chaos this year. The past few weeks have been a reprieve from the market endured in July and August but it is unlikely to last in our view. Despite the lukewarm recovery of the labor market, consumer spending and confidence have improved and stabilized. Retail spending (excluding auto) is up 10% year-over-year, according to the latest consumer data from Bank of America. The lack of service spending opportunities has allowed consumers to purchase more goods. Also, elevated import volumes and low inventory levels give us further confidence that the holiday season should be solid.
On a positive note, 10 of the 15 major freight markets that we monitor as a broad, representative benchmark were positive on a week-over-week basis. This ratio rebounded this week to the stronger levels it has become accustomed to in recent months as the freight market rallies. The markets with the largest gains this week in OTVI.USA were Miami (14.40%), Memphis, Tennessee (8.52%), and Los Angeles (8.05%). The markets with the largest declines this week in OTVI.USA were Houston (-7.34%), Cleveland (-6.42%), and Atlanta (-2.31%).
Tender rejections remain elevated
The Outbound Tender Reject Index (OTRI) was flat this week. However, it has fallen very marginally in recent weeks, which could stem from contract freight being renegotiated, rather than from capacity materially loosening. Tender rejections have declined since Labor Day to 25.11%, but it is important to note that this is off of the highest value in the three-year series history (27%). Carriers are still rejecting one in four loads on a national level, and capacity remains extremely difficult to find.
Tender rejections fell in most regions of the country this week, including all of the major freight hubs on both the East and West coasts. Harrisburg and Allentown, Pennsylvania, and Elizabeth, New Jersey, in the East and both Los Angeles and Ontario, California, in the West all saw lower rejections. The only regions where capacity tightened this week were the Mountain Prairie and Midwest, but these are tiny markets compared to the former major markets listed above.
This week, Stephens released a note on the capacity constraints limiting truck driver training schools. After surveying 28 driving schools, it estimated 22% of all truck driving schools are currently closed — either temporarily or permanently — and current throughput is only running at 57% of pre-pandemic capacity. Thus, even though carriers appear to be stepping up tractor orders again, according to September data from ACT Research, it still may take some time for the bottleneck at driver training schools to be resolved.
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.
Check out the newest episode of the Freight Intel Group’s podcast here.