It isn’t much but a recent upward turn within the Outbound Tender Rejection Index in FreightWaves SONAR was a key focus of the discussion Wednesday in FreightWaves’ State of Freight webinar for May.
With Senior Analyst Tony Mulvey sitting in for FreightWaves CEO Craig Fuller alongside FreightWaves Director of Market Intelligence Zach Strickland, the main target was on whether there was enough statistical evidence that the turn that freight market participants have been waiting for seemingly perpetually had finally come.
Listed below are five takeaways from the chat.
The OTRI is sending out bullish signals
Strickland and Mulvey displayed charts of the national OTRI, which measures the proportion of dry van contracted freight rejected by a carrier when tendered by a shipper. That percent was 3.08% as April drew to an in depth. But on Wednesday, it was as much as 4.82%.
Strickland noted that in comparison with some past figures, the most recent number looks puny. “Sure, rejection rates aren’t 20%, they will not be even 10%,” he said. “Actually, we haven’t even crossed 5%. So we’re still in what we might consider a really loose environment. However the sensitivity of the market has been increasing.”
Based on Strickland, the market will not be yet at a spot where it might be called an “inflection point.” “However it looks like we’re seeing some increased signs that the market is definitely turning.”
What a turn out there would mean for shippers
Shippers are likely seeing their good times come to an end. “It’s one among those times where you’ve been having a reasonably easy time of it,” Strickland said of shippers. “And when it comes to transportation managers, any bad decision you make is nearly easily covered up with the abundance of capability.”
It’s a time when it’s possible for those shipping managers to sometimes get “a bit of bit complacent.” But “that point is now going away, though it’s not gone away yet.” Shipping managers might want to “think in a different way.” True risk management will have to be employed versus a weak market thought process that said “let’s just get our cost threshold.”
Mulvey said those transportation managers shall be seeing a market where cost savings to the shippers “already has happened.” First quarter earnings calls reflected the indisputable fact that volumes haven’t slipped that much but revenues were down 8% or 9%. But Mulvey said contract prices are more likely to “flatten out” from here, “and the fee savings element will go away.”
The impact of Roadcheck
With the CVSA’s International Roadcheck Week within the books, the query is what the impact has been on markets and whether the rise in OTRI was driven partially by that safety program, when many drivers stay off the highway.
The rise within the National Truckload Index (NTI) in recent weeks, for all types of transportation, can have been driven partially by Roadcheck Week nevertheless it isn’t all the explanation, Strickland said. “All three of them are showing an upward trajectory and Roadcheck Week is clearly having a good influence here,” Strickland said. But he added that “I just don’t know if we will say that Roadcheck is necessarily the large catalyst for the freight market.” He noted that there was an identical increase last yr, with Memorial Day also being an element.
Mulvey said a difference from 2023 is that “the market is ready where we’ve lost capability during the last yr.” When that happens, he added, “it creates sensitivity because capability is leaving the market, and it marks these little inputs that [are] rather more impactful, especially Roadcheck.”
OTRI vs. pricing as a benchmark
Strickland noted that he had a protracted profession in truck pricing. And while pricing indices are worthwhile, he favored the OTRI and similar capability indices as a greater indication of the state of the market. There’s an excessive amount of human emotion in truck pricing, he said.
“Prices and dollars might be influenced by emotion,” Strickland said. Market dynamics can usher in “psychology.”
For instance, Mulvey noted that attempting to book capability on a Friday before the weekend is at all times difficult. “I’ve heard the joke that if it’s on a Friday, rates are going to go up,” Mulvey said.
“No one desires to work on the weekend,” Strickland said. “So that you’re going to pay for that premium.” Similarly, if a shipper or carrier is in price negotiations at the tip of the day, “that extra effort requires knowledge.”
The spot market, in response to Strickland, “has really turn into just an excessively weighted wild west environment of desperation.” It’s utilized by carriers who must keep their equipment running, which sometimes leads them to be lower than operating costs, Strickland said.
Demand stays solid
Taking a look at the Outbound Tender Volume Index in SONAR, which measures demand for shipping capability, “you’ll say that a reasonably stable, decent growth in demand,” Strickland said. And the numbers would mean that “we shouldn’t be in a freight recession based on demand-side dynamics alone,” Strickland said, adding that tender volume is up about 9% from a yr ago.”
The difficulty for carriers then stays the overhang in capability, even after a gentle decline in recent months. “It’s not that there’s not demand on the market,” Mulvery said. “I feel what gets lost sometimes is that the freight is opened up amongst many more operators.”
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