Transfix Take: Weekly Market Update (Oct. 12)
Volumes, Prices, Rejections Sky-High
A rise in COVID cases and the lack of a new stimulus package hang over the trucking industry, but for now, freight is driving on up in Q4. Spot rates are still climbing week over week, and average contract rates are climbing along with them, as shippers reprice their freight.
“Regionally, the Southern California market continues to be a strong driver, with preliminary reports pointing to September import numbers being higher than August,” Justin Maze, Transfix’s senior carrier account manager, says. “We have seen Northeast markets tightening fast. Markets from Harrisburg to Elizabeth continue to tighten, and rates continue to drive upward — we’re even seeing some dense freight lanes double their rates YoY.”
Capacity is often taken offline in the Northeast during the Q4 holiday season, as large carriers, such as UPS, FedEx and the USPS, lock in capacity for the influx of local/regional freight moves in the most densely populated part of the country, Maze points out. Whether that will happen in 2020 remains to be seen.
The Outbound Tender Volume Index (OTVI) has been above 15,000 since the middle of August, and the accepted tender volume index value has run between up 16%–20% YoY for many weeks, according to Freightwaves. We are seeing a bit of stability, albeit at sky-high levels.
Report Shows Capacity at New Lows
A September supply chain survey shows transportation capacity has reached new lows, Freightwaves reports. The Logistics Managers’ Index (LMI) increased 450 basis points overall from August to 70.5% in September, while capacity dipped to a 23.8% reading. The LMI is a diffusion index: A reading above 50% indicates expansion and a reading below 50% indicates contraction. The overall index is back to the 70s for the first time since October 2018, due to the boom in e-commerce, while the September transportation capacity reading is now at the lowest level ever for any of the metrics the survey tracks.
“Clearly, consumer-facing firms are struggling to find the capacity needed to meet the increasing consumer appetite for home delivery,” the report stated. “It is interesting that logistics capacity is already this pressed at the end of Q3. Traditionally, Q4 is when we see peak logistics demand, so the fact that it’s already close to maximum utilization calls into question whether or not missed or late deliveries will become an issue through peak retail times in November and December.”
Rejections Stay High, Set Record
The Outbound Tender Reject Index (OTRI) has been at or above 25% for five consecutive weeks, marking the longest time it has been above 25% in its three-year history.
Carriers have been rejecting roughly one in four loads since mid-August, and that number is trending higher for shippers. “As we have noted in recent weeks, rationality would dictate an eventual natural ceiling for the index somewhere in the neighborhood of 25%–30%, as shippers are forced to agree to higher contractual rates (thereby alleviating future rejections),” Seth Holm writes on FreightWaves. “This phenomenon has not yet transpired, though it should increasingly come into play as bid season approaches. The next few weeks should go a long way toward aiding in the discovery of a true ceiling, as the prolonged peak season kicks into gear. Could tender rejections trend in the direction of carriers rejecting one in three loads? Time will tell.”
Who Will Drive the Trucks?
The shortage of drivers comes up against the highest level of new-truck orders since October 2018 — a 55% increase from August order numbers and a 160% jump from September 2019 — leaving the industry wondering: Who will drive the trucks?
“Trucking companies are chipping away at the job deficit created by the implosion of the U.S. economy in March and April, but they are still short of pre-COVID-19 employment numbers and, even more critically, year-ago numbers,” William Cassidy writes.
“The good news for carriers, perhaps, is that those new trucks will not arrive for months, giving them time to try to pump up their payrolls. But large carriers have told logistics executives contacted by JOC.com that they are now seating fewer trucks — sometimes as much as 5% fewer — than they were when freight demand began to rise in May and June.”
The September surge in truck orders could be good news for shippers seeking an expansion of capacity and an easing of rates, but if there is no one to drive the new trucks or if the economy shifts again, we could see another truck-order surge — this time a surge in cancellations.
With the uncertainty and volatility surrounding the US economic recovery, shippers need a partner that can help them adapt and excel — no matter the circumstance. Shippers turn to Transfix for our leading technology and reliable carrier network. As volumes drive higher, we are here to help: Learn more about our Core Carrier program and Dynamic Lane Rates. As part of our ongoing market coverage, we’ll continue to provide breaking news, resources and insight into emerging trends and the pandemic’s impact on the transportation industry.