Sluggish November start, but shippers haven’t taken back pricing power

The Pricing Power Index is based on the following indicators:

Waiting for the seasonal rise in freight demand

The Outbound Tender Volume Index (OTVI), shippers’ requests for capacity, shows that any positive momentum over the last week has disappeared. OTVI is back below the 15,500 level, falling by 2.1% week-over-week (w/w), the biggest weekly drawdown in more than three weeks.

Volume levels had maintained strength over 2020 levels nearly the entire year, with the exception of short blips. At least that was the story until the past week, when freight volumes turned deeply negative. Tender volumes are currently 4.7% below year-ago levels, which is more negative than it has been at any point this year, even lower than holiday-affected weeks. Even with the recent drawdown in tender volumes, volume levels are still nearly 60% higher than 2019 levels.

Over the past month, OTVI has fallen by 2.7%. Across the mileage band, the longest length of haul has outperformed drastically, posting the only increase in tender volumes over the past month. Long-haul (800-plus miles) tender volumes have increased by 1.21% month-over-month (m/m) while short-haul (100-250 miles) tender volumes decreased by 6.5% m/m.

Adjusting OTVI, which includes both accepted and rejected tenders, by the tender rejection rates shows the true level of freight moving through networks. Accepted tender volumes are running down 1.2% w/w, maintaining strength compared to last year, running up 6.9% year-over-year (y/y). The wide gap in the year-over-year comparison in accepted tender volumes is caused by the rapid increase in rejection rates at the beginning of November in 2020. 

Ultimately, freight volumes should see an uptick during the upcoming weeks due to the pressure throughout peak retail season. 

Import demand levels throughout the past year as well as depressed inventory levels signal that truckload demand will remain strong for a prolonged period. 

Across the country, volume levels in 52 of the 135 markets tracked by FreightWaves SONAR were higher over the past week. The largest freight markets in the country have recovered after a couple of slow weeks, especially in Southern California.

The two large Southern California markets, Ontario and Los Angeles, have continued to grow freight volumes over the past week. Tender volumes in Los Angeles grew by 5.78% over the past week, the largest increase in the fourth quarter. Tender volumes are still deeply depressed compared to last year, down 15.8% y/y. In Ontario, freight volumes are still relatively volatile but were up 3.58% w/w.

Freight volumes in the Northeast slowed over the past week. Elizabeth, New Jersey, which has been an outperformer in recent weeks, fell 1.14% w/w after rising 14% last week. Harrisburg, Pennsylvania, the third-largest market in the country, fell by 3% w/w.

Atlanta joined Dallas and Chicago with weekly declines in tender volume levels over the past week. Tender volumes in Atlanta fell by 2.35% w/w, while in Chicago tender volumes fell by 6.5% w/w. In Dallas, freight volumes fell by 3.12% over the past week but are still holding strong against the difficult comps, running up over 23% y/y.

By mode: It was another strong week in the temperature-controlled market as reefer volume growth has accelerated. Reefer volumes as measured by the Reefer Outbound Tender Volume Index (ROTVI) increased by 1.58% w/w. Even with the recent uptick, reefer volumes continue to run down by over 14% y/y, though winter weather and increased demand around the holiday season are going to drive reefer demand through the winter months. 

Dry volumes did take a breather over the past week as the Van Outbound Tender Volume Index (VOTVI) decreased by 2.58% w/w. Much like the reefer market, van volumes are underperforming year-ago levels, down 4.8% y/y. If the holiday retail season is as strong as expected, anticipate dry van volumes picking up rather quickly in the coming weeks.

Rejection rates have yet to make a move higher like in 2019 and 2020

The Outbound Tender Reject Index (OTRI), a measure of relative capacity in the market, has increased over the past week, but after a brief stint above 20% is back sub-20%. Over the past week, rejection rates are down 97 basis points (bps).

Rejection rates are moving in the opposite direction they were in 2020. Since the beginning of November, tender rejection rates have slid consistently, down nearly 100 bps. Rejection rates are falling in more of a similar pattern to 2019, when rejection rates fell at the beginning of November before climbing in the back half of the month and continuing to climb through Christmas.

Rejection rates are now down by nearly 800 bps y/y, but that doesn’t mean that securing capacity is any easier than it was a year ago. Contract rates being repriced significantly higher have driven improved carrier compliance, thus resulting in lower rejection rates. Ultimately, capacity is still extremely difficult to secure and will remain that way, while rejection rates will likely rise in the next six weeks.

New capacity in the form of new Class 8 trucks isn’t likely to enter the market for a prolonged period as OEMs continue to be cautious, working through their own set of supply chain constraints. New Class 8 orders in October were down 12% from September levels and down 39% y/y. Backlogs are now stretching well into the back half of 2022 and putting constraints on the used truck market as well. A used 3-year-old truck now costs over $95,000, an increase of 67% y/y.

As the national rejection rate continued to slide over the past week, the vast majority of the freight markets in the country experienced relative capacity loosen. Of the 135 markets within SONAR, 98 experienced rejection rate decreases over the past week. 

The only three large freight markets in the country that experienced rejection rates increase over the past week were Ontario, Los Angeles and Chicago. Rejection rates in each of the markets increased just 5 bps over the past week. Relative capacity in the Southern California markets is much looser than it was this time last year. Rejection rates in both Ontario and Los Angeles are down nearly 800 bps y/y. The capacity situation has improved in Chicago as well as rejection rates are down 340 bps y/y.

The other large freight markets — Atlanta, Dallas and Harrisburg, Pennsylvania — all saw relative capacity loosen over the past week. Rejection rates in Atlanta fell by 117 bps w/w, further widening the gap with 2020 levels, now down 631 bps y/y. In Dallas, rejection rates fell by 94 bps w/w, bringing the overall rejection rate in the market to 17.53%. Rejection rates in Harrisburg fell by 82 bps over the past week, but the market remains tighter than the overall index as rejection rates have settled in around the 21% mark.

The markets that experienced the greatest changes in relative capacity over the past week were Medford, Oregon, and Augusta, Maine. Rejection rates in Medford increased by 892 bps w/w, more than 300 bps above the second-biggest increase across the country. In Augusta, rejection rates fell by 870 bps w/w. Overall, both of these markets are relatively small, thus rejection rates are volatile in these markets.

SONAR: VOTRI.USA (blue); ROTRI.USA (purple); FOTRI.USA (green)

By mode: Reefer rejection rates have become stagnant over the past two months. Over the past week, reefer rejection rates fell by 5 bps. Rates are still way off the high of over 50% experienced earlier in the year but are sitting 920 bps below year-ago levels. Expect that reefer capacity will remain tight over the upcoming months, as low temperatures across the country prop up reefer demand.

Dry van rejection rates restarted the downward decline this week. Over the past week, van rejection rates decreased by 121 basis points to 18.27%. The largest equipment type in SONAR has been the most stable for the past year but VOTRI is now at the lowest level since late July 2020. The gradual decline in van rejection rates is consistent with the overall rejection index. Heading into peak season expect to see relative capacity tighten in upcoming weeks.

The flatbed market has finally taken a breather as rejection rates took a significant step lower over the past week. The Flatbed Outbound Tender Reject Index (FOTRI) fell by 143 bps over the past week. The smallest equipment type in the dataset was the last to experience that run-up in rejection rates, which is why even with the large pullback this week, flatbed rejection rates are still 1,630 bps higher than 2020 levels.

Ultimately, capacity is going to be difficult to secure throughout the final two months of the year, even though rejections are well below 2020 levels. The risk of capacity flooding the market seems relatively small, especially in the short term. The barriers to entry have become increasingly difficult with the rapid rise in used equipment prices, so shippers expecting conditions to ease significantly over the next three months are in for a tough reality on the capacity front.

Spot rates restart the downward slide

The spot rate data available in SONAR from Truckstop.com is updated every Tuesday with the previous week’s data.

In line with rejection rates restarting the downward slide, spot rates followed suit. Truckstop.com’s national spot rate, which includes fuel surcharge and other accessorials, fell by 2 cents per mile w/w, currently sitting at $3.41 a mile. Spot rates are still 5% off the all-time high but will face upward pressure over the next two months.

Of the 102 lanes from Truckstop.com’s load board, 35 reported increases last week. One of the densest lanes in the country, Los Angeles to Dallas, experienced another rate increase last week. The LAX-DAL rate jumped 7 cents per mile to $3.69/mi, a new all-time high, more than 25% higher than year-ago levels.

Even with the recent drawdown, the national spot rates continue to run over 20% higher y/y. Pressure will intensify for spot rates over the next couple of weeks as peak season kicks off.

Contract rates also pulled back over the past week, decreasing by 2 cents per mile to $2.68. Dry van contract rates, which are reported on a two-week lag, are just 9 cents per mile off the all-time high set in mid-September. 

Contract rates, which are just the base linehaul rate excluding fuel surcharges and other accessorials that are included in spot rates, have closed the gap with spot rates significantly over the past year. Contract rates are outperforming spot rates, continuing to run 20% higher than in 2020.

FreightWaves released the Trusted Rate Assessment Consortium (TRAC) spot rates this week during the F3 Virtual Experience. The spot rates are the average buy rate derived from 3PLs’ and freight brokerages’ reported booked and covered dates. FreightWaves TRAC rates are updated daily and weighted based on proximity to a specific origin/destination with a maximum of 300 miles and length of time to the current date. 

FreightWaves TRAC provides average all-in spot rates for more than 650,000 unique van lanes and over 300,000 unique reefer lanes. Additionally, FreightWaves TRAC provides a range, with the low rate representing the 33rd percentile and the high rate representing the 67th percentile. FreightWaves TRAC provides a confidence score between 1 and 5, with 5 being high confidence, based on the metadata to determine the rate.

The chart above is the FreightWaves TRAC rate from Los Angeles to Dallas, showing that the current rate is $4.05/mi with a confidence score of 5. This lane has a lot of volume moving from a tight radius, which leads to the high confidence score in the rate. 

Ultimately, upward pressure on freight rates is likely to remain in place for at least the next six months and beyond as supply chain constraints continue to be worked through.

For more information on the FreightWaves Freight Intel Group, please contact Kevin Hill at khill@freightwaves.com or Andrew Cox at acox@freightwaves.com.

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