The highlights from Tuesday’s SONAR reports. 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.
As January comes to a close, tender rejections nationwide remain elevated at 20.14%. A notable movement in rejections came from the flatbed segment – tender rejections topped 37.06%, an increase of 50% compared to August through October levels that hovered between 23%-25% rejections.
Traditionally, open deck and flatbed activity slows near the end of the fourth quarter and into the first quarter due to less demand and because winter weather impacts construction and manufacturing capacity. A rise in flatbed tenders indicates strong demand for durable goods, manufacturing and construction verticals. The passage of the infrastructure bill will provide additional demand in the coming months as manufacturers and construction companies ramp-up operations from the new infrastructure improvement projects slated to come online.
For van carriers, this may provide an opportunity for higher rates, as limited flatbed capacity will force customers to adjust, and attempt to load product on dry vans for a lower rate. However, there will be additional challenges, as many fabrication and manufacturing facilities operate a different floor plan from retail and grocery distribution centers, with lack of fixed dock space and additional requirements to be met such as PPE equipment and load-securing devices that may pose a greater challenge for carriers and brokers.
Buoyed by strong consumer demand, continue to expect trucking capacity challenges as inventory replenishment and port backlogs will translate into future load tenders.
Watch: Shipper Update
Lane to watch: Augusta (Maine) to Allentown (Pa.)
Overview: Spot rates peak amid disruption caused by the weekend blizzard.
Highlights:
- Spot rates peaked at $4.20 per mile, up 25% from early January lows of $3.35 per mile on Jan. 9.
- Outbound tender rejections increased to nearly 60% from last week (from 32.82% on January 24 to 61.74% on January 31).
- Outbound tender rejections from the Allentown market are at 20.62%, indicating there are capacity challenges.
What does this mean for you?
Brokers: Winter weather disruption presents greater margins for those with extensive carrier density in this lane. Expect continued volatility for loads coming out of the upper Northeast due to impacts from weather systems disrupting outbound tenders and carrier behavior. Create a margin buffer for any ad hoc opportunities and communicate frequently with customers regarding capacity challenges.
Carriers: Record tender rejections and spot market rates indicate all carriers in the region are experiencing difficulty due to weather concerns. The recent blizzard has placed additional demands on equipment and drivers due to difficulty operating in a severe winter weather environment. Focus on safety and communicate weather delays immediately to customers and brokers, giving them the opportunity to adjust pick up and delivery windows (and to remember your customer service).
Shippers: Expect facility disruptions from winter weather closures that may impact tender lead times and volume levels. Sending out load tenders further in advance and improving existing carrier routing guides are proactive steps to deal with winter weather volatility. Prioritize shipments by day of the week or adjust schedules in the event weather conditions worsen.
Watch: Carrier Update
Lane to watch: Dallas to St. Louis
Overview: New winter weather system threatens nation’s midsection.
Highlights:
- Dallas’ outbound rejection rate has increased from 13.5% to 14.9% over the past week, but the overriding trend continues to be lower.
- Rejection rates to St. Louis have also bounced off their lowest point in nearly a year and are consistently above the market average. Spot rates are slightly lower to start the week at $2.68 per mile compared with $2.76 last Monday.
- St. Louis’ outbound rejection rates have fallen from 30% to 25.6% over the past week, but are trending higher since early November.
What does this mean for you?
Brokers: Consider $2.68 a solid rate in this lane as a significant winter storm is forecast to cover this route with ice and snow by mid-week. Do not waste time trying to negotiate lower as carriers will undoubtedly see the updated forecasts and make adjustments to their routes and prices.
Carriers: Make sure you plan for the weather system to hit along this route. It is forecast to drop ice and snow. The market has not recognized this system yet, but avoiding this area while the storm hits will improve utilization. Accept more loads out of the St. Louis market today and tomorrow to avoid service delays. Ideal loads would be moving south and east before Thursday to avoid the potential of encountering ice in areas north and west of the Mississippi River.
Shippers: Push loads today if possible to avoid potential service delays mid-week. Rejection rates were starting to climb, but had not impacted the spot market as of Monday morning. Increase lead times into next week, when you can to avoid transactional market premiums and service delays.
Lane to watch: Los Angeles to Atlanta
Overview: Capacity shows signs of loosening for both dry van and rail intermodal.
Highlights:
- Dry van carriers are rejecting 9% of outbound LA loads, the lowest rate since the first half of 2020.
- Brokers are paying an average of $3.36/mile, including fuel, for dry van capacity in the spot market in the lane, down 7.4% from the first week of the year.
- Van tender volumes for loads leaving LA remain significantly below December levels (343 index points in VOTVI compared with 375 in late December), but have risen in the past week, which suggests that the LA outbound tender rejection rate may not go much lower.
What does this mean for you?
Brokers: Lower your bids for dry van capacity from where they were for most of January to reflect spot rates that have declined in recent weeks. When negotiating with carriers, cite the recent decline in import volumes at the ports of LA and Long Beach. The decline has been driven by congestion, equipment and labor shortages and is why the LA freight markets have loosened.
Carriers: Making the long trip to Atlanta will leave carriers in a balanced market. The Atlanta Van Headhaul Index is 13, which is a decline from 50 in mid-January as inbound Atlanta volume has picked up faster than outbound Atlanta volume. Van carriers are rejecting 14.1% of outbound Atlanta loads (compared to the national average of 19.3%), which indicates that Atlanta is not currently as tight as most freight markets.
Shippers: Tender lead times suggest that most other shippers are relatively unconcerned with securing long-haul capacity outbound from LA (1.86 days for long-haul outbound LA loads compared with the 2.38-day national average). Shippers moving loads that are less time-sensitive may want to consider rail intermodal; the latest door-to-door intermodal spot rate of $2.25/mile in the lane is well below highway spot rates.
One major trend that stands out in SONAR is the loosening of capacity in the Los Angeles freight markets. That was perhaps inevitable given the 14% year-over-year (y/y) decline in imports at the ports of LA and Long Beach in December. A decline in imports is counterintuitive since there are over 100 ships waiting to dock at those ports, but the import decline is being driven by inefficiencies on the docks that are overflowing with containers and a lack of available workers, equipment and warehousing space.
The loosening in the outbound LA freight market can be seen across modes and in numerous SONAR data sets. The LA van outbound tender rejection rate is 9.6%, compared to 15% three months ago and well below the national van tender rejection rate of 19.1%. Similarly, the LA long-haul outbound tender rejection rate is 14.1% compared with the 21.1% national rate. Carriers are rejecting 6.3% of intermodal tenders, the lowest percentage since the beginning of December.
Evidence of loosening in the LA market is also showing up in truckload and intermodal rates.
SONAR Market Dashboard shows that brokers are paying an average of $3.71/mile, including fuel, for on-demand capacity in the LA-Dallas lane, down from $4.05/mile on January 5th. In the past month, intermodal spot rates to move 53’ containers door-to-door declined 51%, 47% and 45% in the LA-Chicago, LA-Dallas and LA-Atlanta lanes, respectively.
In the weeks ahead, industry participants should keep a close eye on maritime import shipments passing through U.S. Customs (SONAR tickers: CSTM and ICSTM) to understand upcoming changes in the domestic transportation markets.
