After declining slightly last week, the Outbound Tender Volume Index (OTVI) bounced back this week. Last week’s decline was marginal, only -1.3%, but it was the first weekly decline since the freight market began heating up in May. There is still an extremely high number of rejected tenders being counted in OTVI. To account for this, we can calculate the accepted tender volume index (using the inverse of OTRI). This metric fell more than 3% last week but has also bounced back up 1.5% week-over-week.
15,692 * (1 – .256) = 11,675 accepted tender volume index value for Oct. 1, 2020
10,553 * (1 – .052) = 10,004 accepted tender volume index value for Oct. 1, 2019
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. That level has little changed over the past six weeks. Demand remains extraordinarily high and is simply outpacing capacity.
In last week’s weekly trucking update from the Passport Research team, “The flattening,” the team referenced the carrier-facing headcount expansion at brokerages and the wage inflation at carriers as evidence this rally has legs.
Accepted freight tender volumes are running up 16.5% year-over-year despite the minor slump last week. October should give us a strong indication of demand through the end of year. Our expectations have not changed in recent weeks, and we still believe the rest of the year is bright for the freight market. Retail inventories are down 12% year-over-year, while sales are up 11%. The possibility of another round of stimulus before the election would aid this argument. While consumer confidence has faltered, spending is remaining strong given the economic backdrop. These factors lead us to believe that freight volumes could end with a massive bang.
SONAR: OTVI.USA (2020 – Blue; 2019 – Orange; 2018 – Green)
Tender rejections: Absolute levels and momentum positive for carriers
National truckload capacity continues to remain tight as the Outbound Tender Reject Index (OTRI), a measure of relative capacity, jumped 15 basis points over the past week. This jump in tender rejections follows back-to-back weeks where rejection rates took a breather after peaking at 26.68% on Sept. 9. Ultimately, capacity hasn’t substantially loosened and the elevated rejections keep upward pressure on rates as we begin the fourth quarter.
In the two previous years, capacity has loosened throughout September as tender rejections fall in a typical soft freight month. On brand for 2020, the typical freight path has not been followed — tender rejections are slightly higher at the end of the month this year.
While OTRI has fallen ~5% off the Labor Day peak, it remains at a remarkably high 25.66%. This indicates that nearly one in four loads is still being rejected at contracted rates across the country. Rejection rates in three of the six largest freight markets are outpacing the national average for a second week in a row. Although rejection rates have slowed since Labor Day, carriers are still rejecting more than enough contracted freight to keep spot rates high.
