Chart of the Week: Outbound Tender Volume Index – Los Angeles and Ontario, Outbound Tender Reject Index – Los Angeles SONAR: OTVI.LAX, OTVI.ONT, OTRI.LAX
Truckload tender volumes have dropped about 18% out of Southern California over the past 12 months while tender rejection rates are currently exceeding the previous 12 months’s levels. This seemingly contradictory data shows that even in a loose aggregate environment, capability is just not just in regards to the variety of trucks within the U.S.
The recent decline in carrier acceptances is just not a straight example of aggregate capability correcting, but of carrier networks becoming unbalanced as natural freight flows shift.
After many retailers recognized their overordering methodology had filled their warehouses in early 2022, they did what anyone would do: They turned off the tap. And over the past 12 months, carriers have responded by positioning less equipment out West.
That is reflected within the spot rate from Chicago to Los Angeles. Spot rates on this lane stabilized last summer and truly increased 4% from last July to April of this 12 months, in line with FreightWaves TRAC contributors.
The National Truckload Index (NTI) — a measure of all dry van spot rates — fell 23% over that very same period.
Once capability again began to indicate signs of tightening out of Los Angeles — reflected within the regular rise in tender rejection rates that began in April — spot rates for loads moving into the region began to fall again as carriers attempted to position themselves where they were needed.
Overcorrection
Over a 3rd of the containerized imports enters the country through the port complexes of Los Angeles and Long Beach. Prior to the pandemic, this activity peaked within the mid- to late third quarter as shippers pushed freight to the Eastern half of the country for the vacation season.
Throughout the pandemic, this pattern persevered all year long as corporations struggled to maintain up with consumer demand. Not only did truckload capability grow, but carrier networks were designed to maneuver capability into Southern California.
Once the import faucet turned off and Eastern warehouses were filled, capability was stranded out West with nothing to maneuver. Carriers were now left with underpriced lanes heading into the region resulting from the dearth of volume enabling them to cost inbound loads at a lower level. And now although demand is lower from an annual perspective, capability within the region has fallen at a rather faster pace.
On the flip side, spot rates are rising out of Los Angeles, but they should not breaking any records. TRAC rates from Los Angeles to Chicago are up 17% versus early April but still below where they were to start out the 12 months.
If and when the freight market does eventually turn, some of these irregularities will turn out to be increasingly pronounced. The underlying demand pattern shifts are harder to discover in a market where capability is in abundance.
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