Are freight volumes here to stay? The great debate continues

Chart of the Week: Outbound Tender Volume Index– USA SONAR: OTVI.USA

After experiencing one of the most volatile periods in history over the past two months, freight market volumes have recovered to February levels in the past week. February is not a great month for freight traditionally speaking but considering a month ago volumes were running 15-20% below average for this time of year, February looks fine.

One of the most debated topics in the transportation industry and the overall economy is just how does the recovery manifest over the next several months? The fact of the matter is that no one really knows, but keeping track of multiple data points measuring different segments of the global supply chain will enable us to quickly react to all the expected or unexpected realities of the post COVID-19 outbreak world.

For those that attended (virtually) the FreightWaves Live @ Home event May 5-7, you witnessed a debate between FreightWaves CEO and founder Craig Fuller and myself over the topic of how quickly the freight market would recover. It was a gentleman’s bet for pride over whether or not the Outbound Tender Volume Index (OTVI), which is a proxy for truckload volumes moving domestically in the U.S., would hit 9,300 by May 15 and remain there for the remainder of the month. He certainly won the first part of the bet as OTVI pushed over 9,900 on May 15. The second part of the wager remains to be seen, although he is probably feeling pretty confident at this point.

There are still some potential threats to truckload volumes, however. The staggering unemployment numbers and slashed capital expenditure budgets for many publicly traded companies has many concerned about the sustainability of the recent rise of volumes. There are concerning signals from import volumes as well.

The unemployment figures are deceptive in the way that the most aggressive government stimulus package in U.S. history has allowed many to sustain or even exceed their income levels for the next few months. Depending on how consumers view the stability of their situation, there may be less of a hit to consumer demand than would be projected from a 15% unemployment rate.

FreightWaves Passport members will have access to detailed research that shows the relationship between credit card spending and freight volumes using Bank of America Merrill Lynch commentary and data. Senior Research Analyst, Seth Holm, breaks down the relationship between various consumer sector spending habits and their movements over the past two and a half months. Whereas the results show little immediate correlation in immediate movement, there is a relationship with a bit of a lag in timing.

Credit card spending bottomed from a y/y perspective around the same time freight volumes were peaking in late March. Freight volumes bottomed around Easter weekend in April. Both freight volumes and total credit card spending have been recovering at a faster pace in recent weeks with total retail excluding automotive spending turning a positive y/y comp in early May. Even with the direction being positive since late March, total spend remains 10% under 2019 levels in the first week of May.

Total U.S. import shipments spike in April and fall back in recent weeks. Chart: SONAR – Customs Maritime Import Shipments, USA

A lot of the retail goods originate overseas, which saw a large recovery in April at the port of Los Angeles, but FreightWaves customs data shows a large drop in container shipments hitting the port since early May. The indication is that this may be a false recovery signal as shippers had placed these orders before the pandemic had impacted demand in the U.S.

Spiking volumes of loads moving more than 800 miles coming out of port cities like Los Angeles are helping drive truckload volumes back to seasonal levels. Chart: SONAR – OTVI, LOTVI – Los Angeles

With volumes spiking out of markets like Los Angeles and Ontario over the past week, there is a big chance these are just replenishment orders hitting the ports before heading across the country.

Many companies, especially in the transportation sector, came out and reported slashing their capex budgets throughout 2020. This will certainly drag transportation volumes down. OEMs are expected to see a significant drop in orders y/y but may temporarily spike truckload volumes upon resuming operations.

There are still many questions around whether these volumes are sustainable or just a temporary surge, but a little cautious optimism never hurt anyone.  

About the Chart of the Week

The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on for future reference.

SONAR aggregates data from hundreds of sources, presenting the data in charts and maps and providing commentary on what freight market experts want to know about the industry in real time.

The FreightWaves data science and product teams are releasing new data sets each week and enhancing the client experience.

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