How Long Will the Heightened Market Last?
Has the road forward for freight rates started to plateau? Some believe spot rates will begin to stabilize, as carriers continue to reprice their contracted freight, and shippers hope to put a Band-Aid on their exploding freight costs.
There is a huge counter-argument to this, cautions Justin Maze, Transfix’s senior carrier account manager: “As we dive into the data, we see volumes more than 50% higher than they were in 2018, yet the number of trucks on the road has only increased by 8%. Technology has played a key role in reducing that gap by making the industry more efficient, but we haven’t totally closed the gap. Overall spot rates are up 75% YoY, and dry van load–to-truck ratios are up an astonishing 110%. We believe this heightened market will remain through the remainder of the year.”
Tom Wadewitz, UBS’ senior transportation analyst, concurs. In a note published Friday, Wadewitz said he “believes the strength of the trucking market will continue in the second half of 2020 and carry over into 2021, due to the fact that there has been a massive decrease in the inventory-to-sales ratio for retailers in the U.S. and that replenishment should be a major contributing factor moving forward,” FreightWaves Seth Holm reports.
Volumes Reach Another All-Time High; Consumer Spending and Tender Rejections Both Up
The Outbound Tender Volume Index (OTVI) climbed another 3.3% this week to a new all-time high of 15,830.
Thus far, the expiration of enhanced unemployment benefits has not affected the trucking market, nor has it made much of a dent in overall consumer spending, which was up 1.4% YoY this week, according to Bank of America debit and credit card spending data. While spending by lower-income groups no longer receiving enhanced benefits is falling, spending among the employed is offsetting the decline.
Carriers are also still rejecting contracted freight at an unprecedented rate. The Outbound Tender Reject Index (OTRI) rose another 1% this week to 24.97%. “OTRI at 25% indicates one in four contracted loads is being rejected across the country. Historically, this is an extremely high rate and is close to what we believe is the upper bound of the index,” Holm writes. “The market dynamic typically shifts at this level as the market begins to see contracted freight renegotiated at higher rates, thus leading to lower rejection rates. This occurred the last time OTRI reached this level, and we are hearing a similar story now from market participants.”
Spot Jumps Before Hurricanes Largely Spare Freight Markets
At the beginning of last week, two hurricanes were bearing down on the Gulf. Capacity was a big concern, and trucking spot activity and rates jumped in anticipation. Thankfully, Hurricane Marco had little impact, and Hurricane Laura was fast-moving. While Laura was powerful, it didn’t make a direct hit to any metro areas that have heavy effects on freight markets. As of now, the depth of damage is still uncertain, and tightness in the surrounding markets could remain for months, as the area rebuilds. Keep in mind that we are just getting into the height of a hurricane season that is on pace to set records, and major hurricanes are known to increase demand in freight markets.
Freight Market Disrupted Nationwide
Transfix continues to see the freight market disrupted throughout the country. As we reported last week, long hauls out of California are increasing, and rates there are continuing to climb. As shippers optimize for speed over price, imports from China continue their shift from the East to West coasts. Additionally, we are seeing shippers choose dry van over intermodal shipments out of the West Coast, as they are finding that over-the-road is proving to be both quicker and cost-effective.
“The surge of imports through the ports of Los Angeles and Long Beach that began in July and is projected to continue at least through September has interrupted a long-running shift in market share from U.S. West Coast ports to East and Gulf coast gateways,” Bill Mongelluzzo wrote on JOC.com. “While imports were surging at the Southern California port complex, the largest East Coast gateways registered year-over-year volume declines in July.” Carriers and forwarders told JOC.com they expect these market forces to keep the Southern California ports as the main gateway for imports from Asia through the peak season.
In the Pacific Northwest, which usually has some of the lowest rejection levels, tender rejections climbed to Chicago-market levels. And the Northeast continues to heat up, as carriers are still reluctant to head in that direction.
“As we talk to more of Transfix’s carrier base, we discover more and more carriers that are diverging from their normal freight lanes. However, they are looking for opportunities to go back to what they know — as long as it is as lucrative,” Maze reports. “With this mindset, non-contract heavy carriers continue to disrupt supply chains, as do other market conditions, such as the amount of consumer goods being positioned around the country.”
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.