This week’s FreightWaves Supply Chain Pricing Power Index: 35 (Shippers)
Last week’s FreightWaves Supply Chain Pricing Power Index: 35 (Shippers)
Three-month FreightWaves Supply Chain Pricing Power Index Outlook: 35 (Shippers)
The FreightWaves Supply Chain Pricing Power Index uses the analytics and data in FreightWaves SONAR to research the market and estimate the negotiating power for rates between shippers and carriers.
This week’s Pricing Power Index is predicated on the next indicators:
Bulls within the US shop
Freight demand was muted during December’s final week, though what remained was above the degrees of 2020 and 2022 alike. Unfortunately, this relative vivid spot didn’t translate into market dynamics shifting — even temporarily — into carriers’ favor, as tender rejections and spot rates trended noticeably below 2022. As can be discussed below, spot rates did eventually see a lift initially of the brand new 12 months, albeit one which was unable to fulfill FreightWaves’ prior forecasts.
The Outbound Tender Volume Index (OTVI), which measures national freight demand by shippers’ requests for capability, is down 14.2% on a two-week basis as holiday noise devalues comps made against last week’s data. On a year-over-year (y/y) basis, OTVI is up 8%, though such y/y comparisons will be coloured by significant shifts in tender rejections. OTVI, which incorporates each accepted and rejected tenders, will be inflated by an uptick within the Outbound Tender Reject Index (OTRI).
Contract Load Accepted Volume is an index that measures accepted load volumes moving under contracted agreements. Briefly, it is analogous to OTVI but without the rejected tenders. Taking a look at accepted tender volumes, we see a dip of 18.2% on a two-week basis and an increase of 12% y/y. This narrowing y/y difference implies that actual freight flow is recovering from this cycle’s bottom.
The calls are coming in for 2024, with most of them bullish on each the freight market and the broader economy. Prologis boldly forecast a reversal of the freight recession that can see “double-digit growth in port and truck traffic.” Container ports in Southern California are prone to be the primary to profit from this expected reversal, as import volumes are predicted to outpace pre-pandemic levels. With transit limited along the Panama Canal, which is affected by water shortages, and the Suez Canal, rattled by recent attacks on container ships within the Red Sea, Southern California is certainly one of the few destinations which can be relatively problem-free.
That said, U.S. ocean imports will almost definitely languish during China’s annual celebration of Lunar Recent 12 months, which is able to start on Feb. 10. However the influence of Chinese customs and laws on domestic freight demand is about to weaken because the Inflation Reduction Act tempts manufacturers with billions of dollars in tax credits to reshore operations stateside. While the growing trend of reshoring and nearshoring manufacturing plants will take years to remodel the domestic freight landscape, the early stages of the movement are already having a positive effect on cross-border trade with Mexico.
Of the 135 total markets, only 18 reported increases in tender volumes on a two-week basis, with the strongest performances mostly confined to small or seasonally lively markets.
Living in interesting times
With OPEC+ showing a growing variety of fractures amongst its member states, U.S. oil production has grow to be essentially the most significant determinant of world crude prices. Despite already defying expectations in 2023 and finding itself because the highest-volume oil producer in history, the stage is about for the U.S. to ramp up its output in the approaching 12 months. In a quarterly survey of top U.S. oil executives, large and small firms alike said that increasing production was their No. 1 priority in 2024 — albeit in other ways, as larger firms mainly goal asset acquisition while smaller ones angle to make their operations more attractive to potential investors.
Energy prices must be all but invulnerable to an upward shock this winter (an enormous relief for incumbents in an election 12 months), and so consumers will find themselves with barely heavier wallets going forward. Not only does this consequence bear positively on the near-term health of the broader economy, however it also invites the chance for goods demand that’s stronger than expected.
This week, the National Truckload Index (NTI) — which incorporates fuel surcharges and other accessorials — rose 7 cents per mile to $2.43. That this rally got here practically at the start of the brand new 12 months is somewhat unusual, because the NTI typically peaks closer to Christmas. Falling diesel prices partially offset the vacation surge in linehaul rates, with the linehaul variant of the NTI (NTIL) — which excludes fuel surcharges and other accessorials — rising 8 cents per mile week over week (w/w) to $1.81.
Contract rates, that are reported on a two-week delay, found their yearly low in mid-December at a reading of $2.28 per mile. While contract rates have been rising since, their upward momentum is prone to dissipate entirely initially of 2024. The present bid season can be shippers’ final likelihood to exercise the complete extent of their pricing power, because the industry’s recovery must be at an appreciable stage by Q4 2024. In the interim, contract rates — which exclude fuel surcharges and other accessorials just like the NTIL — are up 6 cents per mile w/w at $2.34.
The chart above shows the spread between the NTIL and dry van contract rates, revealing the index has fallen to all-time lows in the information set, which dates to early 2019. Throughout that 12 months, contract rates exceeded spot rates, resulting in a record variety of bankruptcies within the space. Once COVID-19 spread, spot rates reacted quickly, rising to record highs seemingly weekly, while contract rates slowly crept higher throughout 2021.
Over the course of 2023, this spread averaged 10 cents lower than in 2022, indicating that contract rates had yet to come back into balance with the market’s fundamentals of carriers’ supply and shippers’ demand. These lopsided fundamentals were more appropriately reflected in spot rates, that are highly reactive to shifting market conditions. As linehaul spot rates remain 68 cents below contract rates, there may be loads of room for contract rates to say no — or for spot rates to rise — in the primary half of 2024.
The FreightWaves Trusted Rate Assessment Consortium (TRAC) spot rate from Los Angeles to Dallas, arguably certainly one of the densest freight lanes within the country, quickly lost its holiday gains. Over the past week, the TRAC rate fell 17 cents per mile w/w to $2.23 — albeit falling from 2023’s high. The day by day NTI (NTID), which has risen to $2.36, is again outpacing rates along this lane.
On the East Coast, especially out of Atlanta, rates are acting according to the national average, benefiting from a delayed boost that has yet to search out its ceiling. The FreightWaves TRAC rate from Atlanta to Philadelphia rose 9 cents per mile w/w to $2.36. After plateauing well above the national average throughout the summer, rates along this lane declined sharply at the tip of July, lacking any positive momentum until recently.
For more information on FreightWaves’ research, please contact Michael Rudolph at mrudolph@freightwaves.com or Tony Mulvey at tmulvey@freightwaves.com.
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