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 relies on the next indicators:
A return to normalcy?
In the primary half of September, volume trends mirrored those of each 2019, the 12 months of the industry’s last recession, and 2021, arguably the busiest 12 months for freight on record. After a powerful near the month, current trends resemble 2021 greater than the rest: By next week, it is probably going that actual freight flow could have finally risen on a yearly basis for the primary time since May 2022. There isn’t a one single cause for this recovery — in actual fact, consumer confidence declined substantially in September — but market data broadly suggests a straightforward return to normal, seasonal trends.
This week, the Outbound Tender Volume Index (OTVI), which measures national freight demand by shippers’ requests for capability, rose 0.68% week over week (w/w). On a year-over-year (y/y) basis, OTVI is down 2.86%, though such y/y comparisons might be coloured by significant shifts in tender rejections. OTVI, which incorporates each accepted and rejected tenders, might be inflated by an uptick within the Outbound Tender Reject Index (OTRI).
Contract Load Accepted Volume (CLAV) is an index that measures accepted load volumes moving under contracted agreements. Briefly, it is analogous to OTVI but without the rejected tenders. accepted tender volumes, we see an increase of 0.97% w/w in addition to a fall of two.47% y/y. This narrowing y/y difference implies that actual freight flow is recovering from this cycle’s bottom.
The second revision to quarterly data on gross domestic product isn’t often a noteworthy affair, because it arrives three months after a given quarter and is usually an insubstantial edit. But GDP data for Q2 2023, which covers the period from April through June, has proven an exception. Probably the most concerning revision was made to real (i.e., inflation-adjusted) consumer spending in the primary half of the 12 months, as current data now suggests significantly less momentum than before. Personal consumption in Q2 was revised to 0.8% annualized growth, down 80% from Q1’s growth of three.1% and lower than half of the previous estimate’s 1.7% growth.
Why does this figure matter? Consumer spending is the engine of the U.S. economy, accounting for nearly three-quarters of all economic output. The buyer already faces quite a few headwinds heading into Q4: rising oil prices, the resumption of student loan payments, the continuing (and expanding) labor strike against auto manufacturers that may put upward pressure on vehicle prices and the potential for a government shutdown, to call just a few. If consumer resilience is threatened, so too is the longer term of freight demand.
As mentioned previously, consumer confidence is crumbling at an inopportune time. Per the Conference Board’s monthly survey, expectations for near-term health — in income, business activity and labor market conditions — fell in September below the extent that historically indicates a recession inside the subsequent 12 months. The growing caution of the U.S. consumer is prone to impact the upcoming holiday season in one in every of two ways: either there might be one last credit-fueled hurrah in discretionary spending or weakened demand might be felt immediately. (The third option, that vacation spending is solely middling, also stays a definite possibility.)
After their inventory nightmares of the past 12 months, it’s secure to assume that retailers are as attentive to shifts in consumer demand as they might be. So, while any immediate disruption to consumer-driven freight demand isn’t ideal because it risks upsetting the nascent recovery of carrier rates, it holds the potential for the quickest return to normalcy within the front half of 2024. Far more worrisome is that if Q4 freight demand is surprisingly robust, as it could imply either that shippers misjudged demand from their customers (unlikely, but possible) or that customers are stretching themselves too thin. Either scenario is ultimately robbing Peter to pay Paul, as freight demand will suffer in the approaching 12 months.
Is there any excellent news? Recent card spending data from Bank of America shows that consumer spending already began to decelerate after Labor Day. Bank card usage is falling on a y/y basis while debit card spending is rising only barely. There are, nonetheless, two notable exceptions to this downward trend: Online purchases of electronics, that are typically big-ticket items, and department store spending are noticeably up 4% y/y and 4.8% y/y, respectively. On the entire, nonetheless, total card spending is down 0.3% y/y.
Of the 135 total markets, 63 reported weekly increases in tender volumes, though the lion’s share of heavyweight markets saw slight declines in freight activity.
Probably the most noteworthy market this week was, by far, that of Phoenix. Phoenix has rapidly garnered a status as a burgeoning hub for logistics because it has change into one in every of the fastest-growing markets for industrial real estate over the past few years. This week, outbound tenders from Phoenix rose 96.4% w/w, though there’s a caveat for long-haul truckers: The overwhelming majority of those loads are local, moving fewer than 100 miles, and Phoenix’s average lead time for outbound shipments just shrank from 2.5 to 1.75 days. Taken together, this data suggests a type of short-term repositioning project that isn’t indicative of future strength at this level. Even so, Phoenix is a developing market that usually presents these sorts of opportunities.
By mode: Reefer demand has continued to plummet within the latter half of September, mirroring trends from last 12 months. If this comparison still holds true over the approaching weeks, reefer volumes should stabilize in the primary two-thirds of October before rising within the run-up to November, after which demand will plateau until Thanksgiving. In the intervening time, nonetheless, the Reefer Outbound Tender Volume Index (ROTVI) is down 2.48% w/w.
As is the case with the general OTVI, van volumes are looking healthy and are prone to surpass 2022 levels by the primary week of October. Given its heightened exposure to consumer activity, dry van demand will give the clearest picture of spending trends within the weeks to return. Again, a boring but stable performance continues to be within the cards, and so the Van Outbound Tender Volume Index (VOTVI) could reflect a nominal peak season. VOTVI is currently up 2.04% w/w.
Government shutdown could open up opportunities for carriers
Disappointingly, rejection rates tumbled along a protracted slide since peaking in early September, though OTRI yet stays consistent with March’s highest reading. If OTRI stays strictly buffeted by seasonal trends, it is probably going that it is going to proceed to fall further: Even within the busy 12 months of 2021, OTRI didn’t see any upward movement price mentioning until the back half of December. That said, OTRI did see a major recovery in 2019 as early as mid-November. Near-term potential for chaos could speed up this timeline.
Over the past week, OTRI, which measures relative capability available in the market, fell to three.74%, a change of 11 basis points from the week prior. OTRI is now 148 bps below year-ago levels, with y/y comparisons becoming more favorable even when OTRI just stays stable.
Although trucking has been a highly deregulated industry since 1980, it nevertheless deals with regulatory bodies just like the Surface Transportation Board and Customs and Border Protection. Such dealings could possibly be compromised by a government shutdown lasting greater than just a few days, the likelihood of which is growing because the Saturday deadline looms. While a temporary shutdown shouldn’t greatly disrupt freight flow, there are some pain points: Certain shipments that fall under the purview of presidency agencies could be delayed on the border, in the event that they don’t fail to clear altogether. More importantly, nonetheless, the final atmosphere of volatility could possibly be a blessing to carriers that project confidence in navigating the chaos.
The map above shows the Weighted Rejection Index (WRI), the product of the Outbound Tender Reject Index – Weekly Change and Outbound Tender Market Share, as a option to prioritize rejection rate changes. As capability is mostly finding freight this week, only just a few regions posted blue markets, which are often those to give attention to.
Of the 135 markets, 67 reported higher rejection rates over the past week, though 49 of those saw increases of only 100 or fewer bps.
By mode: Flatbed demand is struggling against numerous headwinds, akin to an industrial economy delivered to heel by high federal rates of interest and the slowing construction sector. The Flatbed Outbound Tender Reject Index (FOTRI) did rise 125 bps w/w to eight.07%, but its ceiling appears to be throughout the single digits for now — a far cry from its reading at 16% at the moment last 12 months.
In contrast to current trends in reefer volume, reefer rejection rates have remained fairly stable over the past month. The Reefer Outbound Tender Reject Index (ROTRI), which rose 4 bps w/w to eight.39%, is even outpacing FOTRI for the primary time since early 2022. Van rejection rates, meanwhile, have returned to the degrees of early August, with the Van Outbound Tender Reject Index (VOTRI) sliding 15 bps w/w to three.39%.
Is it over yet?
Regarding the longer term of diesel prices, the mood has shifted from sleepless nail-biting to relieved sighs at breakneck speed. Despite the fact that a persisting imbalance between supply and demand continues to place upward pressure on oil prices, oil traders have proven skittish at extending the rally to $100 per barrel, fearing that Saudi Arabia might reverse its production cuts before anticipated. Retail diesel prices have already began to say no but — with only per week’s price of downward movement — it continues to be too soon to call the highest.
This week, the National Truckload Index (NTI) — which incorporates fuel surcharges and other accessorials — fell 2 cents per mile to $2.26. Sliding linehaul rates were only half liable for this decline, because the linehaul variant of the NTI (NTIL) — which excludes fuel surcharges and other accessorials — fell 1 cent per mile w/w to $1.56.
Contract rates, that are reported on a two-week delay, have moderated after their Labor Day bump, albeit at a level comfortably above their early August low of $2.31 per mile. Since contract rates treat fuel costs as a pass-through, they’re largely exempt from drama surrounding diesel prices. As an alternative, their biggest determinant might be the direction of Q4’s bid cycle, which might be reflected in data from late October. In the intervening time, contract rates — which exclude fuel surcharges and other accessorials just like the NTIL — are up 1 cent per mile w/w at $2.36.
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 info 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.
Despite this spread narrowing significantly early within the 12 months, tightening by 20 cents per mile in January, it has widened again all year long to this point. As linehaul spot rates remain 74 cents below contract rates, there continues to be loads of room for contract rates to say no — or for spot rates to rise — in the rest of the 12 months.
The FreightWaves Trusted Rate Assessment Consortium (TRAC) spot rate from Los Angeles to Dallas, arguably one in every of the densest freight lanes within the country, is finding its footing once more. Over the past week, the TRAC rate rose 6 cents per mile to $2.18 — still a long way from its year-to-date high of $2.39. The every day NTI (NTID), which has fallen to $2.25, is handily outpacing rates along this lane.
On the East Coast, especially out of Atlanta, rates have come down from July’s early peak but are still outpacing the NTID. The FreightWaves TRAC rate from Atlanta to Philadelphia fell 1 cent per mile to $2.36. After a bull run that began at the tip of April, this lane had been plateauing above the national average, which made north-to-south lanes within the East way more attractive than West Coast alternatives.
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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