This Week’s FreightWaves Supply Chain Pricing Power Index: 40 (Shippers)
Last week’s FreightWaves Supply Chain Pricing Power Index: 40 (shippers)
FreightWaves Supply Chain Price Index Three-Month Outlook: 35 (Shippers)
of FreightWaves Supply Chain Pricing Power Index use analytics and data in freight wave sonar Analyze the market and estimate the bargaining power of rates between shippers and carriers.
This week’s Pricing Power Index is based on the following metrics:
the volume does not move the needle
Cargo demand stagnated in major markets this week, but picked up from a few smaller port markets like Savannah, Georgia. However, the overall market picture has changed little as retailers continue to face a lull in consumer demand while sitting on high inventories. It is possible that Hurricane Ian will further boost trading volume, but it is somewhat doubtful (at the time of writing) whether adverse weather will sway scale in any way.
This week, the Outbound Tender Volume Index (OTVI) fell 0.88% on a week-to-week (w/w) basis. On a year-on-year (y/y) basis, OTVI is down 25.22%, although the year-on-year growth may be colored by a large move in rejected bids. OTVI, which includes both accepted and rejected bids, can be artificially inflated by rising Outbound Bid Rejection Index (OTRI).
Contract Load Accepted Volume (CLAV) is a metric that measures the accepted load moving under contracted contracts. In short, it’s like OTVI, but without rejected bids. Looking at the amount of bids accepted, we see a decrease of 0.96% w/w and a decrease of 10.4% y/y. This year-on-year difference confirms that not only OTRI’s year-on-year decline, but a real crack in cargo demand is driving his OTVI to lower levels.
The biggest story in the news media this week is the destruction caused by Hurricane Ian, which made landfall in Florida on Wednesday afternoon. By Thursday, the hurricane had weakened to a tropical storm as it passed through central Florida and headed into the Atlantic. was expected to land near
Florida is primarily a consumer state (also known as the backhaul market) due to its smaller manufacturing base compared to other states in the region. The only exception to this designation is the winter citrus season, as Florida produces about 70% of the citrus in the United States. While it is true that this year’s harvest is likely to face problems from flooding and high winds, it is doubtful whether this crop destruction will have a very large impact on the trucking market as a whole.
Of the 135 total markets, 71 reported increases in weekly freight demand, while many of the largest markets experienced sharp declines.
Case in point: Ontario, California – the second largest market by outbound volume – saw a 9.6% w/w decline in freight demand. Part of this scarcity is due to the lack of imports found in West Coast ports, giving up market share to a historic extent. Dallas, the third and fourth largest outbound market in the nation and Houston, where bids fell by 6.8% w/w and 8.4% w/w respectively.
By mode: Vans volume was surprisingly strong this week as the Vans Outbound Tender Volume Index (VOTVI) rose 2.28% w/w. Despite this, VOTVI decreased by 24.06% year-on-year, the difference being largely due to a sharp decline in bid rejections over the same period. However, the volume of vans received decreased by 9.14% year-on-year.
The Reefer Outbound Tender Volume Index (ROTVI) is down 3.74% w/w as the Reefer Outbound Tender Volume Index (ROTVI) is down 3.74% w/w. is getting worse. Similar to VOTVI, ROTVI decreased by 31.05% year-on-year, mainly due to a decline in freezer rejection rates. The volume of freezers accepted has actually increased by 3.95% year-on-year.
Rejection rate recovers slightly from previous lows
Earlier in the week, OTRI fell to a new cycle low of 5.13% and threatened to break below 5%. Over the past few months we have seen OTRI crashing into several floors. So while OTRI’s move may not be particularly noteworthy on a weekly basis, market conditions are slowly deteriorating. This prolonged decline is a battle of attrition for smaller carriers, especially those operating primarily in the spot market.
Over the past week, OTRI, which measures the relative capacity of the market, rose to 5.23%, a change of 7 basis points (bps) from the previous week. OTRI is now 1,656 bps below last year’s level.
Despite the current easing trend, another capacity shortage could be looming on the horizon. The explanation behind such possibilities is simple. Given the aforementioned declining telco margins and rising operating costs, we may continue to see smaller telcos exit the market as bankruptcies thin the herd. Firms with six or fewer trucks make up the vast majority of carriers (about 92%), so the shock wave among them is felt in spot rate increases and bid denials.
But the photo above is only half of the full pincer move that threatens to tighten capacity. As the ongoing semiconductor crisis continues to disrupt truck makers’ supply chains, major carriers will find it difficult to replace aging equipment. Thus, running on trucks that have expired past the replacement cycle but do not have an adequate supply of new equipment, large carriers will prioritize higher value loads to offset rising maintenance costs. This trend of aging equipment will primarily put upward pressure on subscription rates, given that the major carriers have a strong position in the subscription market.
The map above shows the Outbound Bid Rejection Index — the Weighted Rejection Index (WRI), which is the product of weekly change and outbound bid market share, as a way to prioritize changes in rejection rates. Capacity is generally finding cargo, so this week only a few regions posted typically notable blue markets.
Of the 135 markets, 72 reported an increase in refusal rates over the past week, but 52 of them increased by 100 bps or less.
Atlanta saw a 92 bps w/w rise in rejection rates, but the market’s local OTRI was still at 4.55%, a far cry from the 13% peak seen a few months ago. Nonetheless, Atlanta’s trading volume is trending upwards and now he is at the level last set in mid-July.
By mode: While still volatile, the reefer rejection rate has recovered from the low level of nearly 6.5% set at the beginning of the month. The Reefer Outbound Tender Reject Index (ROTRI) fell 28 bps w/w, but ROTRI continues to rise with markets like Houston. However, the van rejection rate has not changed at all this week, with the van outbound bid rejection index (VOTRI) holding steady at 5.14%.
The Flatbeds could be the star of the week as the Flatbed Outbound Tender Reject Index (FOTRI) rose 160 bps w/w. Key drivers of flatbed demand such as industrial production and Purchasing Managers Index (PMI) continue to rise, which should put upward pressure on flatbed rejection rates in the near future. Needless to say, a shock to the industrial economy would hit flatbed carriers hard.
Spot rates rise later in the week
Mid-September data shows a quarter-end decline in contract rates reported on a two-week lag. On September 10th, the contract rate fell to its lowest level since Thanksgiving last year. The downward trend, which has worsened since early August, is troubling news for carriers heading into fourth-quarter rate negotiations.
The contract rate, which is the base line rate excluding fuel and other ancillaries, rose one cent per mile to $2.70 this week. The contract rate had been renegotiated annually, which proved highly unsuitable for the market volatility brought on by the pandemic. This downturn to rapidly changing market conditions has resulted in a significant number of shippers negotiating contracts on a quarterly basis. While these contracts are launched and implemented, interest rates typically rise in the meantime. From early October he will have data in a couple of weeks, so the contract rate is expected to rise slightly, then drop later in the month. While I fully expect contract rate declines in Q4, the next significant decline he believes will be seen in Q1 2023.
Spot rates were relatively strong this week as the National Truckload Index (NTI) rose 4 cents per mile to $2.68. These gains came despite data from the Energy Information Administration revealing diesel prices fell earlier in the week. The true profit of the spot market can be seen in the linehaul variant of NTI (NTIL). This does not include fuel costs or other ancillaries such as contract rates. NTIL rose 5 cents per mile to $1.93 this week.
The chart above shows the spread of contract rates for NTIL and Dry Bang, with the index continuing to drop to all-time lows in the data set through early 2019. Contract rates outperformed spot rates throughout 2019, with a record number of bankruptcies in the space. As COVID-19 spread, spot rates responded quickly, rising to record highs week after week, while contract rates rose slowly throughout his 2021.
As the spot rate began to depreciate rapidly from the stratosphere in late February, the spread between contract and spot rates narrowed as contract rates continued to rise throughout the first quarter. This resulted in a negative contract-to-spot spread for the first time since July 2020. Contract rates are now 80 cents per mile, exceeding linehaul spot rates.
The FreightWaves TRAC spot rate from Los Angeles to Dallas, perhaps one of the densest freight lanes in the country, could have fallen further. Over the past week, the TRAC rate dropped 4 cents per mile to $2.61. The daily NTI (NTID), which rose to $2.69, is once again above the rate from Los Angeles to Dallas.
Especially on the East Coast outside of Atlanta, interest rates have risen and are still above the NTID. FreightWaves TRAC rates from Atlanta to Philadelphia increased 2 cents per mile this week to settle at $2.70. Tolls along this lane have been down since mid-July when the TRAC toll was $3.48 per mile.
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