Outbound Volumes Hit All-Time High, Show No Signs of Slowing
The market delivered yet another week of record volume, showing no reverence for any seasonality trend or normal freight market. “We believe these volumes will continue for the near future,” says Justin Maze, Transfix’s senior carrier account manager. “Like much of what has happened in 2020, August will be unprecedented.”
The Outbound Tender Volume Index (OTVI) hit another all-time high Friday, at 13,799. “OTVI has crossed into uncharted territory by climbing higher than the March panic-buying spree,” Seth Holm reports on FreightWaves. “The yearly comparisons are stunning — up 34% over 2019 and 38% above the 2018 value.”
“While the freight market is, in no way, following most economic trends, we can see some signals on why volumes are so high — and why we believe they are here to stay,” Maze says. “For starters, consumer consumption of goods is now higher than prior to COVID-19, while services spending (which makes up most of the US GDP) remains weak. This translates into more consumer money being spent on goods that need to be transported around the country, driving up freight volumes. Another government stimulus check will help keep consumer-goods consumption high.
“On top of this, supply chains are still disrupted. For instance, due to shippers needing products faster, we are still seeing a lot of freight out of West Coast ports. While sailing the freight to the East Coast can be more cost-effective, it can take longer to get to end destinations. The trickle-down effect of this will be felt, as all this freight needs to be repositioned around the country. Longer haul volumes have seen the largest increase, which keeps trucks tied up with the same load longer, creating even tighter capacity. As an indication of how long this freight train could last, we see double the average amount of volume still waiting to leave Chinese ports.”
Rejections Keep Climbing
The Outbound Tender Reject Index (OTRI) now sits at 22%. OTRI is higher than its July 4 peak and its March 2020 panic-buying-induced peak. It even surpassed 2018 tender rejection levels.
As long as volumes remain elevated, we should see double-digit tender rejections “Shippers need to start thinking fast on how they can hedge themselves against this market, which has left them in a similar spot as 2018, with rejection rates that continue to rise,” Maze says.
Manufacturing Marks Second Month of Recovery
Economic activity in the manufacturing sector grew in July, posting the best numbers in several months, according to the Institute for Supply Management (ISM).
ISM’s monthly Manufacturing Report on Business’ key metric, the PMI, came in at 54.2 (a reading of 50 or higher indicates growth), a 1.6% gain over June, which ended a three-month stretch of PMI declines. The July PMI is the highest PMI reading of the past year.
New orders, commonly considered the engine that drives manufacturing, rose 5.1%, to a PMI of 61.5, growing at a faster rate for the second consecutive month, with each of the top six manufacturing sectors expanding. This reading also marks the highest new-order reading since September 2018, Logistic Management noted.
“The PMI leads us out of recessions and into recessions,” said Tim Fiore, chair of the ISM’s Manufacturing Business Survey Committee. “What this data is saying is that we all know we are in a recession now, but the PMI says we are coming out of it.”
Overall, manufacturing grew around 17% from June to July, Fiore said, adding that the numbers were coming in at the high end of what was expected. “The demand side was very strong, not only because of new orders coming in over 60, but also because new export orders grew after several months of contracting,” he said.
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.