The Outbound Tender Volume Index (OTVI) climbed another 3.3% this week to a new all-time high of 15,830. OTVI has posted a string of consecutive all-time highs for many weeks now. It is important to note that our outbound tender volume index does include rejected contract load tenders, so the true organic growth of load volumes is significantly lower than the indexed reading. However, this does not mean the index is not directionally accurate or not indicative of the overall strength in the freight market. Freight volumes as measured by OTVI (including tender rejects) are now 50% above 2019 and 58% above 2018.
The breadth of the strength across geographies, lanes and spot rates ($2.67 according to Truckstop.com’s national average) are all confirming the robust backdrop of the current market. We are closely watching consumer spending among those previously receiving unemployment insurance of an additional $600 per week that expired July 31 and it continues to signal warning signs. Washington remains in a stalemate on the extension of these benefits. In fact, spending among the lowest income group no longer receiving extra benefits is decelerating and falling fast. However, the strength and spending growth among the employed is offsetting the drag from the lower income unemployed. Thus far, the expiration of the enhanced unemployment benefits has clearly not impacted the trucking market and it has not made much of a dent in overall consumer spending either, which was up 1.4% year-over-year this week according to Bank of America debit and credit card spending data.
Tom Wadewitz, UBS’ senior transportation analyst, said in a note published Friday that he believes the strength of the trucking market will continue in the second half of 2020 and carry over into 2021 due to the fact that there has been a massive decrease in the inventory-to-sales ratio for retailers in the U.S. and that replenishment should be a major contributing factor moving forward.
Brad Palmer, director of carrier development and pricing at Trinity Logistics, commented on the current market backdrop, saying he is “certainly seeing it [tightness of capacity] more so on the sourcing side, a sheer unwillingness by carriers to lock in their network as rates skyrocket. That’s likely led by a significant amount of uncertainty. It has to be nearly impossible to hold contracted carriers accountable to acceptance with all this disruption. One measure might be to ask a carrier how many trucks they can commit to you long term in their biggest backhaul lane. It’s likely one-tenth the number they would firmly give you last year because they don’t know. Rates were low for a while, government cash helped carriers out a lot during the initial outbreak and it feels like they are making hay while they can while expecting the worst. What’s worse to a business owner, breaking a commitment to a customer or possibly going out of business?”
A warning sign: Spending among those affected by delayed UI is falling, particularly in the lowest income bracket
Source: Bank of America
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 Miami (17.90%), Cleveland (12.98%) and Elizabeth, New Jersey (9.69%). The markets with the largest declines this week in OTVI.USA were Laredo, Texas (-15.10%); Ontario, California (-11.91%); and Savannah, Georgia (-8.43%).
Tender rejections remain elevated
Carriers continue to reject contracted freight at an unrelenting pace. Shippers and brokers are searching for capacity under every rock. The Outbound Tender Reject Index (OTRI) climbed another 1% this week to 24.97%.
The demand throughput has carriers sitting comfortably rebidding or rejecting loads full stop. OTRI at 25% indicates one in four contracted loads is being rejected across the country. Historically, this is an extremely high rate and is close to what we believe is the upper bound of the index. The market dynamic typically shifts at this level as the market begins to see contracted freight renegotiated at higher rates, thus leading to lower rejection rates. This occurred the last time OTRI reached this level, and we are hearing a similar story now from market participants.
The only milestone left in this index’s path is the possibility of a new all-time high. When the market transitioned out of 2018 and added a swath of new capacity, it was clear it would be some time before tender rejections trended toward 2018 levels. But a pandemic that has severely curtailed service spending, in addition to trillions in government stimulus, has induced the market into an unprecedented demand backdrop (at least as far back as FreightWaves data goes). The only question now is how long the good times will last or how long until the market tops and turns down. The freight market cycles are often short and violent in trucking, but for now the strength continues.
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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