Volumes now only 11% off all-time high, but capacity has been slow to react (with video)

The DHL Supply Chain Pricing Power Index uses the analytics and data contained in FreightWaves SONAR to analyze the market and estimate the negotiating power for rates between shippers and carriers.

The carriers gained another 5 points of pricing power this week. Tender volumes continued to surge higher for the fifth week in a row. Many markets across the country have begun to be filled with freight and capacity has gradually tightened across the country. However, for the current volume level, we do believe capacity has been slow to react. Consumer spending data continues to impress and give us hope for a strong recovery on that front. 

The Pricing Power Index is based on the following indicators:

Load volumes: Absolute levels and momentum positive for carriers

The outbound tender volume index continued soaring higher out of the Memorial Day disruption and now sits at 11,489,71. OTVI is now only down 11% below its all-time high from March. National tender volumes have risen 5% since last week and more than 18% month-over-month. 

It is the van segment that has pushed the overall index higher over the past month. In the past four weeks, van volumes have risen 23%, while reefer tenders has only increased 7%. 

The Rust Belt continued its recovery this week. The outbound tender volume index for the state of Michigan is now at a 2-year high. 

SONAR: OTVI.MI

The Southeast and the Southwest have also been sources of freight over the past week, but the West Coast has cooled off significantly. The next few days will be interesting to watch how states handle additional COVID-19 outbreaks. Yesterday there were 8 states which experienced their highest case count to date. If states go back into lockdown, there will certainly be some air let out of this volume train. 

SONAR: OTVI.USA (2020 – Blue; 2019 – Pink; 2018 – Green)

Tender rejections: Absolute levels positive for shippers, momentum positive for carriers

Outbound tender rejections have increased week-over-week for the sixth week in a row after tumbling for the six weeks since the OTRI peak of 19.25% on March 28. 

Capacity has tightened gradually as volumes filled markets across the country during the last few weeks. 

Overall tender rejections are up nearly 10% week-over-week for the second week in a row. We are just 5 weeks removed from the lowest print in series history, so any movement to the upside should be cheered by carriers. Zach Strickland, Director of Freight Market Intelligence at FreightWaves, spoke about operating ratios (OR) for carriers on FreightWaves NOW on Wednesday morning, June 10. He noted that carrier ORs move inversely to tender rejections. Currently, all three mode types from the TPP (van, reefer, flatbed) are posting ORs of over 100%. 

SONAR: OTRI.USA (White); ROTRI.USA (Green)

Spot rates: Absolute levels positive for shippers, momentum positive for carriers

Spot rates continued to climb off the bottom this week for the fifth week in a row. Rates remain below 2019 levels for the vast majority of markets but have surged significantly since the late-April bottom. Rates are responding to rising rejections and spot market volumes – more than 70% of the Truckstop.com lanes are showing positive growth in dry van volumes. 

Spot rates have continued to push higher over the past seven days, but at a slower rate than the previous two weeks. The market seems to be stabilizing with relatively high volume levels and a slowly and gradually tightening capacity picture. 

SONAR: TSTOPVV

Although rates are moving upward, they are coming off a very depressed base. Spot rates plunged when the country went into lockdown and it will be some time before spot rates and volumes fully recover. That said, it is positive news for carriers that spot markets are beginning to rekindle. 

SONAR: TSTOPVR

Economic stats: Momentum and absolute level neutral

Several significant economic releases this week are worth noting.

By far the most widely watched economic data point this week was initial jobless claims, which came out on Thursday. Given its frequency, this is one of the best real-time indicators we have.

Jobless claims for the last week were 1.5 million; this comes on the heels of 1.9 million initial jobless claims last week. This brings the 12-week total to 44.2 million Americans applying for unemployment benefits, which more than wipes out all the job gains since 2009. Continuing claims, a good measure of the persistence of unemployment, clocked in at 20.9 million, which fell by 339,000 and resumed the multi-week streak of falling continuing claims, which suggest some people are being rehired as states opened back up.

This week marked the second straight week since early March that initial claims were less than 2 million. In the past 12 weeks, 27% of Americans have lost their jobs. Although initial jobless claims are trending downward, the 1.5 million initial claims are still more than two times the previous peak of 665,000 in the 2008-09 recession and the all-time record of 695,000 in October 1982. The other good news, in addition to the trend of falling continuing claims, is that initial jobless claims fell for the tenth straight week and marked the lowest weekly total since the coronavirus outbreak in March, indicating initial claims have peaked.

U.S. initial jobless claims (2007-present)

Source: CNBC, U.S. Department of Labor

Taking a deeper look at more granular credit card data from Bank of America Merrill Lynch for the week ending June 6, several things stand out. The good news is that consumer spending appears to have convincingly bottomed and stabilized and is now getting close to positive year-over-year, both overall and ex-autos. We would note that there is a positive benefit to this data because there is an ongoing aggressive mix shift from cash to debit card spending due to the health risks of cash. Debit card spending is faring much better than credit card spending (up 3% year-over-year compared to down 19%).

Overall card spending (both debit and credit) was down an average of 6% for the trailing seven days, a nice improvement from the last three weeks run-rate of -10% and a huge improvement from the trough of -40% during the last five days of March (and -18% five weeks ago). 

Spending in the states that are furthest along in the recovery is actually up compared to last year. For example, Georgia saw overall card spending up 5% year-over-year with restaurant spending only down 15% (compared to about -50% in states that are less far along in the reopening process). Amazingly, retail sales ex-autos is running flat year-over-year for the trailing seven days, (a modest deceleration from last week), driven by strength in the low-end consumer segment. Again, if we are honest, we would never have imagined that consumer spending ex-autos would be flat year-over-year in the midst of the worst recession since the Great Depression.

It remains to be seen how sustainable this boost in consumer spending is. It has been aided by stimulus checks, generous unemployment insurance and the reopening of most states, but it is certainly good news for now. This could be an issue if unemployment benefits expire after July without renewal or extension.

Every category has distinctly bottomed, though airlines, lodging and entertainment continue to show 60%-90% declines in revenue. Lodging is clearly improving, now running down close to 60% from 90%-100% earlier. Restaurant spending is now down only about 30% over the past week, well off the lows of down 65%-75%. Online electronics and e-commerce continue to exhibit scorching growth of 110% and 70%, respectively, on average, for the past week. Grocery has flattened, but is still up double digits as restaurant spending returns. Clothing spending is ramping nicely off the bottom and home improvement remains strong, as it has been for weeks now. Lastly, brick-and-mortar retail spending is showing signs of bottoming (down about 15%) and picking up as states reopen.

The fabulous news is that every category is experiencing a strong recovery and has bottomed now, even airlines and entertainment (which have been terrible for three months straight). Airlines only saw an 86% decline in spending this week, which sounds crazy but is up from down 100% or more (refunds) a few weeks ago. Consumer spending will be important to watch to gauge when the economy and freight volumes will pick up; the card data indicates momentum in terms of improving volumes off of the bottom should continue. The momentum in card spending closely matches the improvement in OTVI since the bottom in mid-April.

Source: Bank of America Merrill Lynch 

Transportation stock indices: Absolute levels positive for shippers, momentum positive for carriers

It was a bad down week for our transportation indices following several strong weeks over the last month. Parcel was the best performer at -3.8% and logistics was the worst performer at -5.8%.

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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