Mixing up the difference between a freight market affected by low rates and rejection rates and one during which volume is comparatively robust stays a feature of the present shipping environment.
That’s one in all the takeaways from the September edition of FreightWaves’ State of Freight webinar, on which Director of Freight Market Intelligence Zach Strickland interviewed FreightWaves CEO Craig Fuller.
Listed here are a few of the key themes of the webinar.
The quantity-capacity imbalance is skewing perceptions
Fuller, citing data from FreightWaves SONAR, said, “We’re seeing current volume at higher levels than we’ve seen almost anytime this yr, and it’s continuing to speed up all year long.” But when he does his “channel checks” or hears “anecdotal statements,” Fuller said freight market participants often conclude that conditions are weak.
But “what they’re talking about is the overcapacity, the overabundance of the variety of trucks,” Fuller said. Data on volume is “actually fairly robust,” he said, showing a chart from SONAR’s Outbound Tender Volume Index (OTVI). An individual the info without bearing in mind rates “would say this looks like a very strong recovery,” Fuller said, with levels “definitely above where we began the yr.”
But “go ask anyone out there, and they might disagree with you. And the rationale they’re not seeing it’s because we’ve had this overabundance of capability out there, and it still exists.”
Where all of it comes together is within the tender rejection data reflected within the Outbound Tender Reject Index, which has lingered often at lower than 5% for several months.
Digital brokerages are keeping smaller carriers alive
“Loads of small guys were in a position to hang on once they weren’t in a position to hang on before because they’ve been in a position to access freight much easier than they ever were in a position to do previously,” Fuller said. And the rationale for that’s the “proliferation of firms like Uber Freight (NYSE: UBER) and Convoy.” Nevertheless it isn’t just the digital brokerages; Fuller cited the “massive growth of C.H. Robinson (NASDAQ: CHRW) over the past decade.” Brokerages on the whole 15 or more years ago just handled “the stuff that no one wanted.” But with the expansion in brokerages, Fuller said he’s finding that some brokerages are pushing out trucking firms in shipper routing guides, giving those carriers which have working relationships with brokers a shot at higher freight. “Jim Bob Trucking,” a euphemism for a small carrier, “is in a position to survive so much longer with barely enough money to remain in the sport.”
The gap between contract and spot rates suggests a bottom can have been reached
The spread in SONAR between contract rates and spot rates is near 62 cents per mile, and that gap has been holding regular. “I definitely didn’t think we’d see the underside with contract rates at 62 cents per mile [over spot],” Fuller said. “I assumed it might go down.” But provided that the spread has held regular for a big period of time and that spot rates are at levels not more likely to go lower “unless we see an economic collapse, I don’t think we are going to see a situation where contract rates get less expensive,” Fuller said.
Intermodal is acting otherwise than previously
Rails lost market share previously due to such issues as service, chassis availability, “things like that,” Fuller said. And with low trucking rates, that’s a troublesome time for intermodal to recapture customers. But “loads of intermodal carriers have form of realized that they must fight for share and have been responding to that of their bid cycles,” Fuller said. And the result’s that the carriers which can be doing well “have capability connected into the railroads.” Moreover, the present marketplace for goods is one where inventory reduction has been the secret for a lot of months, and intermodal delivery “doesn’t do well when you could have very tight time frames,” Fuller said. But with quick inventory replenishment not a priority, “when time shouldn’t be high-pressure, that favors intermodal.”
The approaching Mexican decade will profit Texas
China’s longtime dominance of sending manufactured goods to the U.S. is waning to the profit of Mexico, and cross-border data from crossings resembling Laredo, Texas, bear that out, Fuller said. He noted that Laredo is the strongest-growing marketplace for goods entry into the U.S. “I believe that continues to play out, so we are going to proceed to see a large momentum construct in Mexico,” Fuller added. He also noted that Mexico shall be electing a brand new president next yr to switch term-limited Andrés Manuel López Obrador. With polls showing a powerful performance by Mexico City political leader Claudia Sheinbaum Pardo, Fuller said Mexico could also be led by anyone who has “a really forward-thinking economic policy.” “She’s excited about how do I bring more of the inside a part of Mexico online, not only the border,” Fuller said. On condition that, “I believe there’s a likelihood for Mexico to rise. It’s going to be Mexico’s decade.” And with that can come an infinite spillover of economic activity into Texas, he added.
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