Winter storms across the country — in particular the nor’easter in Pennsylvania and New Jersey and the damaging ice storms in Texas — have caused many retailers to close down and disrupted freight operations. Subsequently, tender volumes have taken a nosedive in the U.S. this week.
It is not typical for tender volumes to decline and rejections to rise midseason. It’s a common occurrence to see this dynamic play out with weather and on major holidays when capacity is taken off line at a faster rate than volumes.
This is a short-term story, but it could have a major impact on freight networks for weeks to come due to the tight capacity environment currently. If this would have occurred at a time when capacity was plentiful and carriers’ assets underutilized, networks could be shifted much easier to absorb the disruption. But with an already tight market, and a meaningful percentage of drivers sidelined, freight will pile up and create a backlog of pent-up demand. Therefore, it may take weeks for already strained carriers to accommodate this freight.
Retailers are still struggling to replenish depleted inventories, especially those coming in from any major port. Consumer demand remains elevated, aided by government stimulus and boosted by the expectation of more to come. Consumer sentiment fell in early February, but the nation is making promising progress with vaccine deployment. One-in-20 Americans have received at least one vaccination. There is now light at the end of the tunnel.
With another round of stimulus, and the likelihood of a meaningful reopening in the summer growing each day, the snow is unlikely to meaningfully or sustainably dent the economic momentum beyond the last few weeks of February. Freight volumes are poised to bounce back in a major way sooner rather than later. As evidence of this, it is projected to be 65 and sunny on Tuesday in Dallas.
On a negative note, only four of the 15 major freight markets that we monitor as a broad, representative benchmark were positive on a week-over-week basis. This ratio weakened dramatically from the stronger levels it has become accustomed to in recent months as the freight market rallies. Clearly the snowstorm was the primary culprit here. The markets with the largest gains this week in OTVI.USA were Cleveland (3.39%), Indianapolis (1.83%) and Ontario, California (1.78%). The markets with the largest drops were Memphis, Tennessee (-33.43%), Houston (-31.17%) and Dallas (-18.92%).
Tender rejections skyrocket back to near peak
Only three states in the continental U.S. didn’t receive meaningful amounts of snow this week. Tender rejections across the nation have risen substantially over the past week, particularly in Texas, Arkansas and much of the Midwest. Carriers are rejecting half of all outbound tenders from Arkansas, Missouri, Iowa, Nebraska and all of Illinois, excluding the Chicago area.
The national average for the Outbound Tender Reject Index (OTRI) rose more than 5 percentage points from 21% last week to 26.3% currently. Unlike the typical falling volumes and rising rejections events, this occurrence will not revert back to normal quickly. The reasons were laid out above — elevated demand potentially growing with stimulus and reopening hopes on top of an already strained capacity network.
We expect volumes to snap back quickly next week, but it will take some time for carriers to work through the freight disrupted by the storms. This will keep upward pressure on tender rejections and spot rates through the end of the month and right into the beginning of the spring freight season.
For more information on Passport Research, please contact sholm@freightwaves.com.
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