SONAR sightings for March 3: Chicago to LA, shipper update, more

What does this mean for you?

Brokers: Do not take capacity for granted in this lane. Carriers have increased their
contract compliance rates to deflationary levels out of LA, meaning they are not getting
the payout they once had to cover the LA market. This is putting upward pressure on
inbound load pricing.

Carriers: Now is the time to target rate increases out of the Chicago market with
compliance rates staying well above the national average in many lanes. It may be a
bit premature in this lane, but you can certainly increase your spot market offering as
spot rates and volumes have dried up over the past two months out of LA.

Shippers: Watch for spot rates getting too far above contract rates in this lane.
Carriers were once climbing over each other to get out West and that is diminishing.
Rejection rates on this lane are around 15%, meaning your compliance rates should be
at or above 85% if your rates are around $1.70 or higher.

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Watch: Carrier Update

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Lane to watch: Los Angeles to Detroit

Overview: Spot rates have fallen below $3.00/mile (to $2.91/mile), the lowest level in six months.

Highlights:

• Spot rates have fallen 20.5% – from $3.66/mile on Jan. 1 to $2.91/mile at the beginning of March. This indicates declining tender rejection rates are having an impact on downward spot rates out of Los Angeles. 
• Outbound tender rejections from Los Angeles remain steady at around 7% compared to the Detroit destination market, which rose to 21.39%. This indicates continuing capacity challenges in areas around Detroit and the adjacent markets of Grand Rapids and Ft. Wayne. 
• While the overall Detroit outbound tender rejection rate hovers around 21%, intra-Midwest freight continues to suffer from limited capacity, with destinations in Ohio, Kentucky and Indiana showing rejection rates between 25% to 28%.

What does this mean for you?

Brokers: The gradual decline in spot rates out of Los Angeles can pose a challenge as carriers will attempt to maintain pricing power even as rates declined $0.75/mile. To put that in perspective, at 2,283 miles that would be a potential revenue swing of $1,712.25, which can mean the difference between a major margin win or a shipment becoming cost plus depending on the rate it was booked. Brokerages that maintain greater buying power can take advantage of these price movements. The ability to offer competitive rates a few hundred dollars cheaper than the competition can help drive up volume goals at the expense of compressed margins. 

Carriers: The rapid decline in spot rates over the past 45 days is a byproduct of outbound tender volumes declining from around 420 basis points (bps) down to 374 bps, leading to fewer spot market postings as tender rejection levels hover around 7%. That indicates other carriers are mostly able to meet their contracted lane obligations. Tender volumes remain volatile; there is the potential to see another rise in spot rates if the port backlog situation improves, which could be viewed as another rise in outbound tender rejections. 

Shippers: The greater tender compliance rates and lowering spot market rates should provide some relief to the record transportation costs impacting shippers in the Los Angeles area. The outbound tender lead time remains around 2.4 days. This is an important factor to consider, as any upward movement could indicate other shippers are expecting price hikes and attempting to tender further in advance for greater savings. Backhaul spot rates from Detroit to Los Angeles are rising, potential proof that carriers are adjusting their pricing strategy and expecting lower costs when returning to the Los Angeles area. 

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Watch: Shipper Update

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Lane to watch: Elizabeth (NJ) to Chicago

Overview: Rejections rise as the Headhaul Index surges 48% w/w.

Highlights:

• Elizabeth outbound volumes are up 15% w/w, but with maritime import volumes hitting a new all-time high for daily volumes, demand is likely to surge higher.
• Elizabeth’s Headhaul Index has increased over 48% w/w, signaling the capacity is likely becoming increasingly imbalanced.
• Outbound tender rejections in Elizabeth are already up 172 bps w/w, but are likely to move higher as the Headhaul Index surges. 

What does this mean for you?

Brokers: The w/w change of 48% in the Headhaul Index is a large shift in the Elizabeth market, and it is being primarily driven by a 15% increase in outbound volumes. Outbound tender rejections are already up 172 bps w/w, so expect significant upward pressure on spot rates this week and for capacity to be especially tight. 

Carriers: Elizabeth pricing power is likely to shift even further in your favor in the coming days due to a growing imbalance between inbound and outbound volumes. Keep an eye on outbound tender rejections, and if they continue even higher w/w, then you are likely to see significantly more upward pressure on spot rates. 

Shippers: Your shipper cohorts in Elizabeth are still averaging 2.8 days in tender lead times, but history indicates that when capacity tightens quickly in Elizabeth, lead times should be between 3.5 and 4 days to help relieve some of the pressure being put on capacity and spot rates.