This week’s DHL Supply Chain Pricing Power Index: 25 (Shippers)
Last week’s DHL Supply Chain Pricing Power Index: 20 (Shippers)
Three-month DHL Supply Chain Pricing Power Index Outlook: 50 (Balanced)
The DHL Supply Chain Pricing Power Index uses the analytics and data contained in FreightWaves SONAR to analyze the market and estimate the negotiating power for rates between shippers and carriers.
The Memorial Day holiday throws weekly volume comparisons out the window, but it seems relatively more volumes moved this year than each of the past two years this week. Rejection rates have staggered, but spot volumes are on the rise but remain depressed. There are now 21.1 million Americans on continuing unemployment benefits, yet our transportation indices are all up 4%-plus.
The Pricing Power Index is based on the following indicators:
Load volumes: Absolute levels and momentum positive for carriers
The outbound tender volume index is calculated and visualized as a seven-day moving average to smooth out daily volatility. Because of this, holidays render week-over-week comparisons nearly useless. Due to Memorial Day, OTVI now sits at 9,191.39, and has climbed 4% off the holiday bottom. Although weekly comparisons are not meaningful, comparing the net decline and recovery periods gleans insights.
This year, the net drop in volumes was slightly less than each of the previous two years. Also, the snapback has been more pronounced this year than 2018 or 2019. That is an encouraging sign that volumes are continuing their trek to the upside this week. Volumes have risen rapidly off the bottom of mid-April, but the rate of change has accelerated in May. Between May 8th and the Sunday before Memorial Day, national tender volumes rose more than 12%. This is partly due to the typical shipper rush to move freight before a holiday, but it also is a sign shippers are seeing demand for their goods. With much of the country now open in some capacity, freight is bound to be moving.
A few events have occurred in May to push volumes back above the 10,000 level: agricultural harvests in California and Florida; automotive and manufacturing facilities in the Midwest reopened; and restaurants and retail stores began to open their doors after almost three months of lockdown.
We have noticed the timing of the volume rise has coincided with consumer spending picking up. The Passport Research team will be releasing a detailed account of consumer spending and its relation to freight volumes next week. For now, consumer spending and consumer sentiment is being propped up by government stimulus. This will be a major trend to watch come August when the government money is set to expire.
SONAR: OTVI.USA (2020 – Blue; 2019 – Green; 2018 – Orange)
Tender rejections: Absolute levels positive for shippers, momentum positive for carriers
Outbound tender rejections have increased week-over-week for the fourth week in a row after tumbling for the six weeks since the OTRI peak of 19.25% on March 28. Capacity has tightened as volumes began to fill markets throughout May. Overall reefer rejections are up 22% week-over-week. It’s not much, but just three weeks removed from the lowest print in series history, any movement the upside should be cheered by carriers.
The produce season helped push reefer rejection rates up, especially in and around California and Florida. Reefer rejections stalled last week but began to rise again before Memorial Day. Time will tell whether the trend will continue or if it was simply a holiday bump.
Although there are pockets of tightening capacity in the Southeast, on the West Coast and northern plains, capacity remains loose across the country. Border crossings between the U.S. and Canada are up 2.8% this week over last according to the Canada Border Services Agency, but still down 25.5% from a year ago. There’s not quite a light at the end of the tunnel in the capacity picture, but it’s no longer pitch black.
SONAR: OTRI.USA (White); ROTRI.USA (Orange); VOTRI.USA (Green)
Spot rates: Absolute levels positive for shippers, momentum positive for carriers
For the third week in a row, spot rates have increased off the bottom. While rates remain well below where we would expect them to be at this time normally, it has gotten much better for carriers in May.
Almost all (87%) of the Truckstop.com spot rate lanes are positive week-over-week. One-quarter of the markets are up by at least 10%. It is not just the contract volume market heating up. More than 80% of the Truckstop.com lanes are showing positive growth in dry van volumes.
Although rates are moving upward, they are coming off a very depressed base. Spot rates plunged when the country went into lockdown and it will be some time before spot rates and volumes fully recover. That said, it is positive news for carriers that spot markets are beginning to rekindle.
Economic stats: Momentum and absolute level neutral
Several significant economic releases this week are worth noting.
By far the most widely watched blockbuster economic data point this week was initial jobless claims, which came out Thursday. Given its frequency, this is one of the best real-time indicators we have.
Jobless claims for the second week of May were 2.1 million; this comes on the heels of 2.4 million initial jobless claims last week. This brings the 10-week total to 40.8 million Americans applying for unemployment benefits, which more than wipes out all the job gains since 2009. Continuing claims, a good measure of the persistence of unemployment, clocked in at 21.1 million, a decrease of 3.9 million from the prior week, which is a good sign as it suggests some people are being rehired as states open back up.
To put into context just how high that number is, 1% of the American workforce lost their jobs this week, although this is down sharply from the peak trend of 4% per week just a few weeks ago. In the past 10 weeks, 25% of Americans have lost their jobs. Although initial jobless claims are trending downward, the 2.1 million initial claims are still over three times the previous peak of 665,000 in the 2008-09 recession and the all-time record of 695,000 in October 1982. The other good news, in addition to the falling continuing claims is that initial jobless claims fell for the eighth straight week and marked the lowest weekly total since the coronavirus outbreak in March, indicating initial claims have peaked. The unofficial unemployment rate now sits close to 25%, more than seven times the 50-year low of 3.5% from about 10 weeks ago.
U.S. initial jobless claims (2007-present)
Source: CNBC, U.S. Department of Labor
Taking a deeper look at more granular credit card data from Bank of America Merrill Lynch for the week ending May 23, several things stand out. The good news is that consumer spending appears to have convincingly bottomed and stabilized, albeit at a moderately low level. We would note that there is a positive benefit to this data because there is an ongoing aggressive mix shift from cash to debit card spending due to the health risks of cash. Debit card spending is faring much better than credit card spending (up 1% year-over-year compared to down 24%).
Overall card spending (both debit and credit) was down an average of 10% for the trailing seven days, in line with the last two weeks and still a major improvement from the trough of -40% during the last five days of March (and -18% three weeks ago). Memorial Day may have distorted results as there was likely less spend on travel and parties relative to last year.
Amazingly, retail sales ex-autos are actually running flat year-over-year for the trailing seven days, (in line with last week), driven by strength in the low-end consumer. Again, if we are honest, we would never have imagined that consumer spending ex-autos would be flat year-over-year in the midst of the worst recession since the Great Depression.
It remains to be seen how sustainable this boost in consumer spending is. It has been aided by stimulus checks, generous unemployment insurance and the reopening of most states, but it is certainly good news for now. This could be an issue if unemployment benefits expire after July without renewal or extension.
Every category has distinctly bottomed, though airlines, lodging and entertainment continue to show 70%-100% declines in revenue. Lodging is clearly improving, now running down close to 70% from 90-100% earlier. Restaurant spending is now down only about 35% over the past week, well off the lows of down 65%-75%. Online electronics and e-commerce continue to exhibit scorching growth of 136% (an acceleration from 126% last week) and 86%, respectively, on average for the past week. Grocery and home improvement remain strong, as they have been for weeks now, though grocery is modestly decelerating to up high teens year-over-year. Lastly, brick and mortar retail spending is showing signs of bottoming and picking up as states reopen.
The fabulous news is that outside of airlines and entertainment, every category has bottomed and is experiencing a strong recovery. Consumer spending will be important to watch to gauge when the economy and freight volumes will pick up; the card data indicates momentum in terms of improving volumes off of the bottom should continue. The momentum in card spending closely matches the improvement in OTVI since the bottom in mid-April.
Source: Bank of America Merrill Lynch
Transportation stock indices: Absolute levels positive for shippers, momentum positive for carriers
It was a fantastic week for our transportation indices. Truckload was the best performer at 7.5% but all modes were hugely positive and not far behind.
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