The outbound tender volume index (OTVI) is shown as a seven-day moving average to smooth out day-to-day volatility. As such, when national holidays occur and many drivers get off the road and shippers shut down, OTVI declines quickly and stays depressed for seven days. We are currently one day away from OTVI returning to non-holiday levels. Due to its nature, weekly volume comparisons are rendered useless this week.
We can, however, compare the depth of the decline to gain insights on where the index will be after the weekend. This year’s fall is in line with that of 2018, roughly 15% off of the July 1 peak. 2019 experienced the sharpest decline in OTVI’s three-year history at nearly 19%. As we wrote last week, we understood the pre-Independence Day volume level was unsustainable. OTVI peaked at just under a series-high at 13,000 on July 1.
There is little evidence that suggests freight volumes will not continue to be elevated as the index bounces back from holiday disruption. Consumer spending is still relatively strong given the unemployment backdrop, and consumer confidence partially rebounded in June. Time will tell how much the resurgence of the coronavirus outbreak affects freight volumes. During the height of the first outbreak, freight volumes went on a wild ride due to the panic-buying then subsequent shutdowns. It is the latter event, should it occur, that will dent freight volumes. Fortunately, this time around the lockdowns potentially may not be as severe (at least on a nationwide basis).
As we mentioned, week-over-week comparisons are useless this week as all 15 of the major freight markets FreightWaves tracks were negative on a week-over-week basis. This ratio has been consistently high in recent weeks and we expect it to bounce back next week. The markets with the largest declines this week in OTVI.USA were Savannah, Georgia (-24.98%), Laredo, Texas (-21.69%) and Los Angeles (-20.66%).
Tender rejections remain elevated despite post holiday lull, now at 15%
The outbound tender reject index (OTRI) is exhibiting some stickiness at a high level. OTRI has declined only a matter of basis points since its latest peak just before July 4 and remains quite high at 15.90%. The supply-demand dynamic of May, June and July has been much different than March and April. During March we saw volumes and rejections rise in stepwise fashion to all-time highs in a matter of weeks. This time around it has taken much longer for freight volumes to fill markets, and it has taken even longer for carriers to gain the confidence to reject contracted loads in favor of spot market options.
Another difference in this tightening environment is that volumes will likely remain elevated for some time unlike in April when volumes plummeted to holiday levels due to nationwide lockdowns. We should expect to see tender rejections in the double-digit range as long as volumes remain elevated – should the status quo prevail.
The reefer segment continues to be particularly strong for the carriers. Volumes have been accelerating from the West Coast and reefer tender rejections lead all modes at 20%, although rejections for all trailer types remain elevated (outside of flatbed where they have fallen in recent weeks). Carriers have begun looking for other opportunities outside their contracted freight in this environment of freight abundance and this level of tender rejections typically is a leading indicator of upward pressure on rates. A melt-up in spot pricing is a possibility if volumes stay strong in coming weeks.
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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