This week, the Outbound Tender Volume Index (OTVI) climbed another 3.5% to a new all-time high of 14,276. OTVI has posted a string of consecutive new all-time highs for many weeks now. On a year-over-year basis, outbound tender volumes are up 39% and 42% above 2018 levels.
Please note that when we refer to volumes within the context of this weekly article, we mean “outbound tender volumes” which includes both accepted loads and rejected loads. In times of high tender rejections, this can overstate the true organic growth of load volumes but we view the index as directionally accurate and representative. In times of low tender rejections, the difference is negligible.
This freight level is remarkable for a few reasons. First, there are no signs of any sort of typical seasonality this year; secondly, other parts of the economy have stalled and unemployment remains extremely high; lastly, OTVI has crossed into uncharted territory by climbing higher than the March panic-buying spree.
The stalemate in Washington around further fiscal stimulus and expired unemployment insurance (UI) benefits is the primary risk to freight volumes and will be important to watch as they were a meaningful factor in the recovery in freight since April. A deal appears to be weeks away as sources familiar with the matter have described the two sides as “hopelessly far apart”. Meanwhile, warning signs are already appearing as consumer spending by those no longer receiving expired unemployment insurance is falling off, especially on the lower end (which had previously been the strongest spending cohort for months). This is not surprising as millions of Americans are now missing out on enhanced unemployment assistance of an extra $600 per week.
A warning sign: spending among those affected by delayed UI is falling
Source: Bank of America
The freight market has gone through a series of ups and downs over the past few months but the current strength appears sustainable. The threat of lockdowns created a panic-buying situation in March, then freight volumes plummeted because the majority of businesses were closed. Now, regions are going back into lockdown but the restrictions are less severe. The sectors being locked down are predominantly service-based industries that do not move a large percentage of the nation’s freight. In addition, the lack of service options for consumers to spend money on has increased the demand for goods and transportation of said goods. Consumer demand remains fairly strong given that economic backdrop. Despite this, we do not believe the typical seasonal decline will be as pronounced this year. Carriers remain in a wonderful pricing position.
On a positive note, 11 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. The markets with the largest gains this week in OTVI.USA were Laredo (20.10%), Cleveland (16.32%) and Elizabeth, New Jersey (7.39%). The markets with the largest declines this week were Savannah (-10.43%), Miami (-5.43%) and Fresno (-2.78%).
Tender rejections remain elevated
After five days of declining tender rejections, the Outbound Tender Rejection Index (OTRI) turned upwards again this week. There will be fluctuations in the index as the industry stabilizes at this tighter capacity level. OTRI now sits at 21.59%, meaning more than one in every five tendered loads is being rejected at contracted prices.
The index continued exhibiting stickiness at a high level for a sixth week in a row. OTRI is now well above its July Fourth peak, above its March 2020 panic-buying-induced peak and even crossed over 2018 tender rejection levels for the first time two weeks ago and has stayed above this week. FreightWaves has heard from large asset-based carriers that they are rejecting more freight than they have in a very long time.
The supply-demand dynamic of May, June and July has been much different than March and April. During March volumes and rejections rose in stepwise fashion to all-time highs in a matter of weeks. This time around the rise in freight volumes and tender rejections has been slower but consistently upward and gradual.
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.