Volumes, Rejections Still Driving Uphill
Freight continued to drive uphill for yet another week. This week’s volumes continued to break more records, and rejections rose again. Reefer freight rejections are nearing the 40% rate, with very little capacity in the market to cover this freight. With rates at such high levels, carriers are looking to power through Labor Day weekend, as well as the following 3-day DOT road-check blitz, which was moved to September due to COVID-19.
“As we talk to our carrier partners ahead of the blitz, we are finding that not as many carriers are looking to take equipment off the road as in the previous year, due to the blitz coming right after a holiday weekend,” says Justin Maze, Transfix’s senior carrier account manager.
The Outbound Tender Volume Index (OTVI) climbed another 1.4% to a new all-time high of 16,053. But the rate of volume acceleration has begun to slow, Seth Holm reports on FreightWaves. Because the OTVI does include rejected contract load tenders, which affects the true organic growth of load volumes, FreightWaves introduced a proxy index for accepted tenders. “Using this metric to control for the high level of rejected tenders allows us to get a more accurate understanding of the true demand level. This does not mean demand is not at a historically high level — it is. With this metric, trucking volumes (van, reefer, flatbed) are running up over 19% year-over-year,” which is a three-year high.
“Demand is simply outstripping capacity right now, and nothing appears to be pointing to that changing anytime soon,” Holm writes. “Accepted tenders remain at a historically high level (despite high tender rejections), and carriers are exercising their options in searching for the highest rates and best loads. In doing so, carriers are being selective — only accepting three of every four tenders.” The Outbound Tender Reject Index (OTRI) rose slightly (1.1%) this past week to 25.62%.”
Spot rates have now passed contracted shipper rates, due to the high rejection rate. This is causing a lot of pressure on shippers to renegotiate or move up RFPs to stabilize their supply chains. “As shippers re-price, it could give some relief on tender rejections, but rates will continue to remain high for the near future, due to the volume of freight that remains on the spot market,” Maze says. “Even backhaul markets, such as Miami, Seattle and Houston, are all over 10% rejections.”
At Transfix, we continue to see West Coast long-haul freight dominating, with freight lanes such as Los Angeles to Chicago and Los Angeles to Dallas doubling from last year. Markets in the Midwest and Northeast continue to heat up, as well.
“For Labor Day week, we expect rates to continue to rise, but in the following weeks, we expect them to turn more stable and start to flatten,” Maze says. “As we look forward to Q4, there is a good chance markets will stay this tight through the remainder of the year. Bookings for maritime freight from Asia to America continue to be higher YoY, as importers prepare for the holiday season. Ocean-freight rates are also at all-time highs, with import at high levels, as importers continue to restock warehouses and take in back orders from pre-pandemic.”
Manufacturing’s August Output Highest in 12 Months
For the third consecutive month, manufacturing output rose, according to data from the Institute for Supply Management (ISM). In its monthly Manufacturing Report on Business, ISM reported that its key metric, the PMI, was 56 (50 or higher indicates growth), which was above July’s reading by 1.8%. August’s PMI represents the highest PMI reading of the past 12 months.
“New orders, which are commonly referred to as the engine that drives manufacturing, climbed 6.1% to 67.6, growing for the third straight month,” Jeff Berman wrote on LogisticsManagement.com. “What’s more, the August reading is the highest since January 2004’s 70.6. Inventories slipped 2.6%, to 38.1, which ISM described as a level that is ‘too low’ and has been down for 47 months straight. Production, at 63.3, headed up 1.2%, from July to August, growing for the third consecutive month, with each of the top six manufacturing sectors showing production growth. August is the highest reading for production since January 2018’s 64.2.”
In an interview, Tim Fiore, chair of the ISM’s Manufacturing Business Survey Committee, explained that this report showed very solid demand increases, especially when looking at the new orders number, as well as new exports (up 2.9% to 53.3) and imports (up 2.5% to 55.6). “Global trade is coming back, and the customer inventories number is at its lowest level in 10 years (down 3.5% to 38.1), which is really good,” Fiore said. “That means that production has a lot of work to do to fill that bucket. And backlog of orders came up, too (up 2.8% to 54.6), so we are happy about that. Overall, there was very surprisingly strong demand for the month of August.”
Retailers Work to Shore Up Inventories
On the heels of a second-quarter stock-out and a 2020-low retail inventories-to-sales ratio in June, U.S. retailers are increasing imports, and sending most of their cargo through Southern California to feed waves of e-commerce orders and avoid getting stung again by low inventories, according to Cathy Morrow Roberson on JOC.com.
“As stores reopened from COVID-19-related shutdowns, retail sales jumped, resulting in retailers’ inventories significantly declining and causing stock-outs in popular categories, such as game consoles and exercise equipment,” Roberson wrote.
The U.S. Census Bureau’s latest monthly retailer inventory-to-sales ratio report for June decreased from 1.35 in May to 1.23 in June, which is down 11% from June 2019. Excluding automobile dealers, the most significant decline by category was in clothing and accessories, which reported a 4.5% month-to-month drop in the ratio from May to June, and a 7% drop from June 2019.
According to IHS Markit, the combined inventories of wholesalers and retailers rose 0.5% in July. This followed sharp declines over the prior three months and led IHS Markit to raise its forecast of the change in inventory investment in the third quarter by about $107 billion. As a result, IHS Markit expects inventories to decline in the third quarter by far less than they did over the second quarter, contributing 3.5 percentage points to third-quarter GDP growth.
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.