This week’s DHL Supply Chain Pricing Power Index: 75 (Carriers)
Last week’s DHL Supply Chain Pricing Power Index: 80 (Carriers)
Three-month DHL Supply Chain Pricing Power Index Outlook: 70 (Carriers)
The DHL Supply Chain Pricing Power Index uses the analytics and data in FreightWaves SONAR to analyze the market and estimate the negotiating power for rates between shippers and carriers.
The Pricing Power Index is based on the following indicators:
Load volumes: Absolute levels positive for carriers, momentum neutral
National tender volume retreated more than 5% over the past week, in continuation of the now >15% slide since Thanksgiving. In a year in which seasonal patterns have been ignored and chaos has taken hold, volumes are following a seasonal path into the Christmas holiday, albeit at a much higher level than normal. The Outbound Tender Volume Index (OTVI) has declined on average 6-8% over the past three-week period in previous years, but due to the extraordinarily high base this year, the decline is steeper.
The American consumer has proved a champion so far this year keeping the economy afloat with his/her willingness to spend more money each month even in the face of mounting job losses, political uncertainty and recurring virus outbreaks.
SONAR: RESL.USA (Blue); OTVI.USA (Green)
But that streak has come to an end. Not only did the November retail sales total come in 1.1% lower than October, but the .3% increase in October was revised down to a .1% decline. Total retail sales remain positive on a year-over-year basis, up 4.1% over last November.
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The retail sales report and other readings on the U.S. economy suggest the recovery is slowing after a burst of growth over the summer. Hiring eased in November while workers filing for unemployment benefits rose. Separate surveys of factories and service-industry companies released on Wednesday indicate the U.S. output grew at a solid pace in early December but at the weakest pace in about three months. Even home builder confidence slipped in December, albeit from an all-time high.
Economists said the retail declines were “warning signs” that the economy was entering a rough patch and in need of a jolt from another round of government stimulus. The November slide, in particular, adds new urgency to this week’s stimulus package discussion on Capitol Hill. On Wednesday, top Democrats and Republicans were said to be nearing a $900 billion deal that would expand unemployment benefits and provide new stimulus checks to consumers.
Consumer spending accounts for roughly 70% of total economic growth, and we estimate 40-45% of all freight consists of consumer-facing goods, so propping up retail sales is pivotal for reaccelerating this freight bull run.
Last week the Passport Research Team said that the trucking market was beginning to flash yellow warning signs. The data this week does not support a change in that view.
SONAR: OTVI.USA (2020 – Blue; 2019 – Orange; 2018 – Green)
Tender rejections: Absolute levels positive for carriers, momentum neutral
Similar in fashion to tender load volumes, tender rejections have been following a seasonal path over the past week. With Christmas just seven days away, carriers are seeking freight that will send or keep drivers near their domiciles. So after the Outbound Tender Reject Index (OTRI) had fallen considerably off all-time highs, the index has reversed trend and gone parabolic, settling Friday at 26.75%.
In being ultra selective and bracketing drivers, carriers voluntarily and naturally give up some pricing power to the shippers. For this reason, we feel that OTRI will retest the Thanksgiving highs as it continues to climb higher through Christmas Day, but spot rates will likely not retest the recent year-to-date highs.
SONAR: MAPS
Looking at the country regionally, Southern California has loosened as trucks entered the market to snag one last high-paying load before the holiday. Carriers are still rejecting more than one-in-five loads out of Los Angeles/Ontario, but capacity is less difficult to secure now than in previous weeks.
Much of the rest of the country is tightening as drivers exit the highway for home. The Northeast remains disrupted from the nor’easter that buried the region in snow this week.
SONAR: OTRI.USA (2020 – Blue; 2019 – Orange; 2018 – Green)
Spot rates: Absolute levels positive for carriers, momentum positive for shippers
Last week, the national spot rate average notched a yearly high at $3.07/mile, inclusive of fuel. Since then, the Truckstop.com national dry van rate has fallen nearly 6%. It is a meaningful leg down from a YTD high, and we believe that due to freight losing its time sensitivity and carriers bracketing, spot rates will not retest that high.
Of the 100 Truckstop.com spot rate lane pairings in SONAR, only 10 were positive week-over-week.
SONAR: TSTOPVR
We found it interesting to see spot rates climb higher last week when capacity loosened in many regions of the country. The sharp decline this week makes more sense with that in mind. In any case, carriers will enjoy rates near double the average operational costs per mile into the new year.
SONAR: TSTOPVR.USA (2020 – Blue; 2019 – Green)
Economic stats: Momentum and absolute level neutral
Several economic releases this week are worth noting.
Weekly jobless claims were released Thursday and give us one of the best close-to-real-time indicators of the overall economy.
Jobless claims rose this week and came in well above consensus expectations. A negative and slightly disturbing multi-week trend is developing here. Jobless claims were 885,000, which widely missed the consensus of 808,000. This week’s claims were the largest since Sept. 5. There was more positive news, however, in the form of continuing claims (a rough proxy for unemployment), which fell this week by 300,000 to 5.5 million. The unemployment rate fell to 6.7% in November from 6.9% in October, which is good news but the rate of change to the downside has slowed as coronavirus cases spike again and the jobless rate may rise in December.
Initial jobless claims (weekly in 2020)
Source: CNBC, U.S. Department of Labor
Turning to consumer spending as measured by Bank of America weekly card (both debit and credit) spending data, total card spending in the latest week was up 2.2% year-over-year. The picture is brighter when focusing on retail spending excluding auto. Retail spending (excluding auto) was up 9.8% year-over-year last week.
As we usually note, keep in mind there is an ongoing beneficial mix shift from cash to debit that is somewhat inflating these numbers. One can tell this is the case from the fact that debit card spending is currently running up 13% year-over-year and far outpacing credit card spending, which was down 3% After consistently running deeply negative for months and being down precipitously in April, credit card spending appears to have finally turned the corner.
The main takeaways this week are that core holiday season spending since Nov. 1 is still running up 18% year-over-year; however, the very recent trend this week dipped slightly below 2019. Second, restaurant spending is starting to double-dip to the downside with a 17% year-over-year decrease this week. The restaurant spending trends in colder markets with indoor dining restrictions are starting to fall off a cliff again. Lastly, there is no discernible difference in overall spending between COVID hot spots and non-hot spots in the U.S., except for brick-and-mortar retail spending, which is weaker in COVID-affected markets.
By category, online electronics (up 86% year-over-year this week) and online retail (up 55%) continue to be the standout performers. However, the former two categories have slowed meaningfully from their monthslong blistering pace but have settled in at a high level. Other strong categories include home improvement, furniture and general merchandise. The strong categories, as well as the weaker ones, have been remarkably persistent since the pandemic began, with the former weakening slightly and the latter improving gradually.
Grocery was up 9% year-over-year this week, extending the winning streak we have seen in the rate of grocery spend in recent weeks and months, which raises eyebrows as COVID cases reaccelerate. As mentioned, restaurant and bar spending had staged a huge comeback but is now exhibiting worrisome signs, dropping 17% year-over-year. This trend is showing a slip for several weeks in a row and will be an important category to monitor going forward with COVID-19 cases skyrocketing globally. Finally, airlines, lodging and entertainment continue to be the worst-performing categories by far, but all three categories are way up off the bottom. Airlines and entertainment are now declining about 60%-70% year-over-year compared to the trough of down 90%-100% in early April.
Card spending by American consumers has a strong correlation with truckload volumes, so we will continue to monitor this data closely going forward.
Source: Bank of America Securities
Transportation stock indices: Absolute levels and momentum positive for carriers
It was a mixed week for our transportation indexes following several strong months, though many transportation stocks are well off their highs. Parcels were the best performer this week at 2.4%, while LTL was the worst performer at -2.9%.
For more information on the FreightWaves Freight Intel Group, please contact Kevin Hill at khill@freightwaves.com, Seth Holm at sholm@freightwaves.com or Andrew Cox at acox@freightwaves.com.
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