Chart of the Week: National Truckload Index Linehaul Only, Outbound Tender Volume Index – USA SONAR: NTIL.USA, OTVI.USA
Truckload spot rates excluding estimated fuel costs are up ~13% since early May with truckload tender volumes up 7% because the start of the yr, though still a shadow of what they were in 2021. Is the freight market finally recovering from its post pandemic hangover or is that this simply a seasonal bump of false hope?
The reply to each questions is yes. The actual fact there may be any semblance of seasonal movement as a substitute of a continuous downward trend is an indication that the freight market is stabilizing, but it surely shouldn’t be definitive evidence that offer and demand have rebalanced.
Rates are noisy
Spot rates are a culmination of multiple aspects. At their simplest they measure the fair market value for moving a truckload in a given lane. That value tends to extend around the vacations as shippers have narrowing service windows and carrier availability becomes increasingly limited.
At times, the easy undeniable fact that many individuals expect rates to change into costlier can inflate the market without capability actually tightening meaningfully. This happens resulting from the shortage of transparency, where neither shippers, brokers nor carriers have an entire view of the market.
Carrier costs are also a component of the speed. While the direct costs like labor and equipment are easier to estimate from an out of doors perspective, the network component driven by their unique customer footprint makes them less comprehensible.
As an illustration, a carrier could have more freight moving out than into the Houston market due to a big customer. This leads it to supply rates which might be lower than market average (and even direct costs) into the Houston area so it could win more business and canopy its obligations.
Losing this account would change the best way the carrier prices freight into Houston. That is currently happening on a bigger scale within the U.S.
As demand patterns have shifted post-pandemic, carrier networks are also in flux. The epicenter of the freight boom was in Southern California. Carriers priced loads moving into this region more cheaply than others to assist position their trucks.
Ontario, California’s outbound market share fell from 4.25% originally of 2022 to close 3% at the tip of that yr while Atlanta has remained relatively flat and Dallas has grown.
Demand has fallen more sharply out of Southern California than most of the larger Eastern markets, leaving freight contracts underpriced heading out West. Pair that with a comparatively low amount of freight moving in that direction and also you get less capability within the region, exposing it to more price fluctuations.
The present spot rate from Los Angeles to Dallas based on FreightWaves TRAC is $2.15 per mile — up 23% from May 1. The near-term increase is impressive, but rates are still well below contract and 20% lower than last yr. There’s a rebalancing act going down that’s pushing rates back into equilibrium.
Demand seems stable
The national Outbound Tender Volume Index (OTVI), a measure of shipper requests for truckload contract capability, has been trending higher since January and is following a semblance of a seasonal pattern that existed prior to 2020.
Comparing 2023 to pre-pandemic 2018 (purple) and 2019 (green), spring demand got here and sustained sooner than usual. One other takeaway is that the market can expect demand to ease to an extent in July without cause for alarm.
The major takeaways as we close the primary half of 2023 are that the market has found a requirement floor and there isn’t a strong evidence that spot rates will sustain their trend beyond the everyday summer seasonality bump. The Western regions are tightening, but this can smooth out as pricing aligns. The vast majority of the bubble has burst but capability remains to be due for a powerful correction.
Concerning the Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that gives an interesting data point to explain the state of the freight markets. A chart is chosen from 1000’s of potential charts on SONAR to assist participants visualize the freight market in real time. Each week a Market Expert will post a chart, together with commentary, continue to exist the front page. After that, the Chart of the Week will likely be archived on FreightWaves.com for future reference.
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