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.
Last week, domestic intermodal company Hub Group provided pricing guidance to investors that seemed conservative when compared to data in SONAR. The company’s management told investors that it expects pricing to be higher by mid-single digits for all of 2022, with pricing stronger than that average early in the year before coming down to a low-single digit year-over-year (y/y) increase late this year.
The SONAR chart below shows average intermodal contract rates rising in each of the past six quarters from the prior quarter. Year-to-date, the average intermodal contract rate in the data sample is $2.81/mile, up 19.5% from the first quarter of 2021. That average rate doesn’t include fuel surcharges so, of course, that y/y change understates the all-in rates paid by shippers.
If one assumes that intermodal contract rates for the remainder of 2022 remain flat compared with the first six weeks of the year, intermodal contract rates in SONAR would be 10.2% higher y/y for all of 2022, not including fuel surcharges.
Watch: Carrier Update
Lane to watch: Roanoke (Va.) to Birmingham (Ala.)
Overview: Spot rates climb to 6-month highs amid rising outbound tender rejections.
Highlights:
- Because of weather disruptions, Roanoke outbound tender rejections have surged 94% from early February lows of 12.47% to 24.20%.
- FreightWaves TRAC spot rates from Roanoke to Birmingham have plateaued at 6-month highs of $3.72 per mile, a 36-cent increase since Jan. 1 rates.
- Birmingham outbound tender rejections climb to 29.32%, indicating ongoing capacity-related volatility and higher outbound spot rates.
What does this mean for you?
Brokers: Rising tender rejections and spot rates are creating high lane volatility, which can lead to higher margins as shippers are paying premiums for ad hoc opportunities. Building an in-depth carrier routing guide will reward brokers via higher margins, as a 36-cent per mile swing within 30 days leaves the opportunity to quote high and buy a truck for lower costs.
Carriers: For extra capacity in the market, spot market volatility can be a boon for revenues. Ad hoc quotes directly with shippers can generate significantly higher rates than contract rates, while increasing the odds of the quote being awarded (since brokerages may charge extra due to their marginal buffer requirements). Knowing your cost per mile, the market rate, and cost of other capacity can create greater opportunities to stack revenue on the truck.
Shippers: High tender rejections and spot rates represent major headwinds for orders moving at the last minute or if a carrier falls off a load. Increase tender lead times to catch potential service issues earlier in advance; otherwise expect to pay higher costs on the spot market the closer you get to the ship date. Brokerage competition may increase due to volatility, as brokers that leverage greater buying power can produce some savings.
For the week ahead, we will begin to see some of the largest y/y declines in TEU volumes from China to the U.S. While the decline in volume has certainly been impacted by Chinese New Year, it would appear that there are a number of additional factors leading to these y/y declines. These include (but are not limited to) economic uncertainties, inventories being largely replenished, consumer demand beginning to decline, etc.
As of the last reading from SONAR’s Inbound TEU Volume Index, volumes from China are currently down 26% y/y, down 17% month-over-month (m/m), and down 29% week-over-week (w/w). Since these volumes are one the best leading indicators for future domestic freight volumes, this is a trend to keep a very close eye on in the days and weeks ahead. If this trend continues, it could be a warning sign of dropping volumes, and thus, downward pressure on spot rates.
Watch: Shipper Update
Lane to watch: Los Angeles to Atlanta
Overview: Falling dry van spot rates and rising intermodal spot rates indicate that spot shippers should use the highway.
Highlights:
- As shown in the SONAR Market Dashboard app, the dry van spot rate in the lane is $3.25/mile, including fuel, down 8% from one month ago.
- The intermodal spot rate to move 53’ containers door-to-door, which is updated each week in SONAR, increased 38.4% in the past week to $3.45/mile, including fuel.
- The dry van tender rejection rate in the lane is 11.7%, down 408 basis points (bps) in the past month.
What does this mean for you?
Brokers: The falling spot rates in the lane indicate that you should lower your bids in order to preserve margins. When bidding for capacity, keep in mind that the average dry van spot rate is $3.22/mile while $3.34/mile and $3.05/mile are the spot rates in the 67th and 33rd percentiles, respectively. All rates include fuel surcharges.
Carriers: The tender rejection rate on dry van loads departing LA has fallen to 6.9%, well below the national van tender rejection rate of 18.4%. Therefore, there will be fewer spot loads available than you have become accustomed to during the pandemic. The Atlanta market is not as tight as most domestic freight markets currently, but the Atlanta Van Headhaul Index of 23 indicates that there should be sufficient opportunities to get reloaded in Atlanta.
Shippers: It is likely that very few, if any, intermodal containers are moving on the spot market at the latest $3.45/mile spot rate. However, the sharp 38% increase in the intermodal spot rate in the lane, well above dry van spot rates, suggests that carriers have become concerned with securing capacity for intermodal shippers that have contracts in place. Therefore, intermodal shippers should add more time to their plans and spot shippers should utilize the highway.
The week was light in terms of the number of economic releases; however, there were impactful takeaways. Consumer credit increased once again in December after surging in November. Consumers are leveraging credit card usage more as inflationary pressures increase and household savings have retreated from levels seen in 2021. The Consumer Price Index (CPI) also increased in January, now at 7.5% over the last 12 months and the highest level in 40 years (and there will likely be more upward movement in the coming months).
Supply chain issues, as many of you know, are still very active. The Logistics Managers’ Index had a 9.5 percentage point increase in inventory levels. This is the second month after an unseasonable rise in December. Inventories typically move down during these months, so this is a concerning trend that seems to be more widespread upstream as late shipments are likely just getting to the U.S.
The coming week has many major releases, including the Producer Price Index, retail sales, industrial production, housing starts and initial jobless claims. Retail sales will be one of the top updates to watch. December retail sales eased after a strong October and November pull-forward in spending. However, the interesting measure will be y/y comparisons.
Consumers were flush with stimulus cash in January 2021, and retail sales soared as a result. Consumer savings rates are now much lower, credit card usage is climbing and inflation is at the highest level since 1982. Housing starts will also have interesting updates. Permit activity was elevated in the previous release and the looming interest rate increase may push some to rush into a new housing situation. However, mortgage applications seem to be easing at the moment. Building materials and manufacturing backlogs will keep flatbed trailers active during these typically lax months.
Lane to watch: Atlanta to Stockton (Calif.)
Overview: Atlanta’s outbound rejection rate fell over two percentage points last week.
Highlights:
- Atlanta’s outbound rejection rate dropped over two percentage points to 14.1% over the past week, which is one of the strongest volume moves in the country.
- Rejection rates to Stockton recently fell below the market average with FreightWaves TRAC spot rates peaking around $2.10 per mile last week before falling back slightly.
- Stockton’s outbound rejection rate has plummeted since the beginning of the year, falling from 17.5% to 9.5%.
What does this mean for you?
Brokers: Expect some easing in this lane this week as Atlanta capacity becomes more available. Thanks to elevated rates, carriers are targeting westbound loads, even if they are heading into traditionally oversupplied markets.
Carriers: Because of declining rejection rates, do not expect as much volume in this lane this week. The Atlanta market has stabilized over the past week, which will reduce contract waterfalls and spot market activity.
Shippers: Evaluate your carriers if you are still seeing compliance rates below 80% and your contract rate is above $1.50 per mile plus fuel over the past month. Rate increases should not be necessary, but deeper route guides or longer lead times may be needed.