The highlights from Wednesday’s SONAR reports are below. For more information on SONAR — the fastest freight-forecasting platform in the industry — or to request a demo, click here. Also, be sure to check out the latest SONAR update, TRAC — the freshest spot rate data in the industry.
Lane to watch: LA to Chicago
Overview: J.B. Hunt says intermodal volume in outbound West Coast lanes remains defensible against loosening truckload capacity.
Highlights:
- On Monday night, J.B. Hunt dismissed analysts’ concerns that falling spot rates would impair its domestic intermodal volume. Specifically, the domestic intermodal provider said that truckload spot rates remain twice the amount of the intermodal rate on the same lanes outbound from the West Coast.
- SONAR Market Dashboard shows that the average dry van spot rate from LA to Chicago is $2.44 a mile, including fuel.
- That implies that the prevailing intermodal contract rate in the lane is ~$1.22 a mile, including fuel. Highlighting the benefit to a shipper of having a contract in place, the intermodal spot rate in the lane according to SONAR is $1.90 a mile, also including fuel.
What does this mean for you?
Brokers: Brokers should lower bids for loads in the lane that have to move via the highway given the 11% decline in dry van spot rates during the past 30 days. When negotiating with dry van carriers, cite Chicago’s attractive Van Headhaul Index of 42, indicating there is more outbound than inbound freight.
Carriers: Competition between truckload and intermodal may intensify in the Eastern intermodal lanes, but from LA to Chicago, intermodal and dry van remain more distinct markets. Therefore, expect highway loads from LA to Chicago to be service-sensitive and look to get compensated accordingly.
Shippers: Intermodal shippers with contracts set to renew should expect to see meaningful increases in contract rates in the lane despite falling truckload rates since there remains “room” before dry van rates are competitive with intermodal. On Monday, Shelley Simpson, J.B. Hunt’s chief commercial officer, said that from her perspective the bid season is the strongest in memory.
For the week ahead, we can expect the continuation (and probable expansion) of the massive COVID restrictions and lockdowns that have been implemented in China. This has made the data a bit more difficult to interpret as to whether a softening of volumes is primarily attributed to lockdown effects on factories, logistics providers, port workers, etc., or is being driven primarily by the simultaneous softening of consumer demand at a time when U.S. importer inventories are at some of their highest levels ever. While it is still not known what kind of volumes are being impacted in China (in the form of delayed factory orders), the U.S. economic indicators are certainly stacked against import volumes remaining close to where they have been over the past 12-18 months. The Purchasing Managers Index from the Institute for Supply Management (ISM.PMI), which is a key leading indicator of U.S. import volumes, has been in decline the past few months, and that is unlikely to change in the newest report. With the trucking market plummeting into a recession and consumer credit card debt levels at record heights, the U.S. consumer debt-to-income ratio (primary indicator of the housing market) reached its highest levels since just before the “Great Financial Crisis” of 2008-2009. In addition, inflation has reached some of its highest levels on record, and the Federal Reserve is slated for another interest rate hike at its next meeting. Thus, it is hard to imagine how U.S. consumers can continue feeding demand for containerized imports.
Watch: Shipper update
Lane to watch: Salt Lake City to Omaha, Nebraska
Overview: Tightening capacity in Salt Lake City means upward pressure on spot rates is forthcoming.
Highlights:
- Spot rates took a nosedive last week and haven’t rebounded yet as capacity tightens in Salt Lake City.
- Omaha’s outbound tender rejection and outbound tender volume rates are both rising at a consistent pace but are not significantly affecting capacity.
- Outbound tender rejection rates are falling and volumes are rising in Salt Lake City, meaning capacity is starting to tighten.
What does this mean for you?
Brokers: Capacity is tightening in Salt Lake City, indicating upward pressure on spot rates. The spot rates haven’t risen yet but soon will, making now the opportune time to book loads before the rates increase. Do not expect rates to drop any further on this lane.
Carriers: Hold firm on rates. Capacity is beginning to tighten in Salt Lake City, meaning spot rates will start to trend upward in the near future. Work with shippers and brokers to improve compliance on contracted freight to prepare for the upswing in rates.
Shippers: Outbound tender lead times in Omaha are averaging 4.12 days, which is slightly unusual for this market. However, since Omaha has a large agricultural presence, those tender lead times will become critical in securing capacity for shipments.