This week’s DHL Supply Chain Pricing Power Index: 40 (Shippers)
Last week’s DHL Supply Chain Pricing Power Index: 35 (Shippers)
Three-month DHL Supply Chain Pricing Power Index Outlook: 60 (Carriers)
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.
Freight volumes cooled off slightly this week but remain well above both 2018 and 2019 levels. Capacity has taken a long time to react to these elevated volume levels. Tender rejections are finally reaching levels that lead us to believe there is upward pressure on rates.
The Pricing Power Index is based on the following indicators:
Load volumes: Absolute levels and momentum positive for carriers
National volumes cooled this week after two strong weeks to begin June. The outbound tender volume index currently sits at 11,276, down slightly from last week (-1.85%). Despite the sluggish weekly comparison, yearly comparisons remain rosy (up nearly 10% year-over-year). 2019 was considered a relatively soft freight market, so the yearly comparison does not hold as much weight as the two-year stack comparison. 2018 was a banner year for freight volumes and the current total is nearly 5% over 2018.
The Rust Belt continues to outperform relative to other regions of the country. The Commerce Department released industrial production data for May this week. Most industries posted small rebounds, but automotive vehicles and parts posted the largest gain. Anyone who has been reading this publication over the past few weeks should have anticipated this — I’ve been noting the Michigan volumes for weeks now.
While the Rust Belt rebounded well over the past week, major markets on the West Coast and in the Southeast declined significantly. Atlanta; Ontario, California; and Memphis, Tennessee, all saw volumes decline more than 5% over the past seven days, and markets in the Pacific Northwest gave back some index points this week.
It seems volumes have stabilized at this high level for the meantime. Factories are open, consumers are beginning to travel again and consumer spending data rebounded in a big way in May. The worst of the recessionary environment is behind us, but how long freight volumes can run this high will depend on the consumer, who is being propped up by government stimulus. When that money runs out in July, we will have a much sharper picture of the recovery road.
SONAR: OTVI.USA (2020 – Blue; 2019 – Purple; 2018 – Green)
Tender rejections: Absolute levels neutral, momentum positive for carriers
It was more of the same this week on the tender rejection side of the story. This marked the seventh week in a row in which tender rejections rose on a national level. The outbound tender rejection index crossed 7% for the first time since panic-buying and hoarding pushed the index up to 19.25% in March.
The index has been on a steady grind to the upside for the better part of two months and is now nearing levels that lead us to believe there is serious upward pressure on rates in some parts of the country. It has taken some time for capacity to react to this high volume level, but it seems carriers are finally feeling confident in their ability to decline freight and shop around. So long as volumes remain elevated, we expect tender rejections to continue pushing higher and putting pressure on rates.
SONAR: OTRI.USA (2020 – Blue; 2019 – Purple)
Spot rates: Absolute levels positive for shippers, momentum positive for carriers
Spot market volumes bounced back after a slow week last week. The vast majority of the lanes for which Truckstop.com providers SONAR with spot volumes were positive week-over-week. Of the 100 Truckstop.com lanes, rates for more than half were positive this week, which is a bit less than in the previous three weeks.
Volumes have proved sticky at this elevated level. Capacity has been slow to react but is now showing signs of tightness in many markets across the country. If these trends continue, we expect to see an escalation of pressure on spot rates. Despite the recent run, rates remain below 2019 comparisons across the board.
Economic stats: Momentum and absolute level neutral
Several economic releases this week are worth noting.
By far the most widely watched economic data point this week was initial jobless claims, which came out on Thursday. Given its frequency, this is one of the best real-time indicators we have.
Jobless claims for the past week were 1.5 million (which missed expectations of 1.3 million); this comes on the heels of 1.5 million initial jobless claims last week. This brings the 12-week total to 48.7 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 20.5 million, which fell by 62,000 and resumed the multiweek streak of falling continuing claims — suggesting some people are being rehired as states open back up.
This week marked the third straight week since early March that initial claims were less than 2 million. In the past 13 weeks, 30% of Americans have lost their jobs. Although initial jobless claims are trending downward, the 1.5 million initial claims are still more than two 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 trend of falling continuing claims, is that initial jobless claims fell for the 11th straight week and marked the lowest weekly total since the coronavirus outbreak in March, indicating initial claims have peaked.
US 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 June 13, several things stand out. The good news is that consumer spending appears to have convincingly bottomed and stabilized and is now getting close to positive year-over-year overall and is up for retail ex-autos. 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 5% year-over-year compared to down 19%).
Overall card spending (both debit and credit) was down an average of 5% for the trailing seven days, an improvement from -6% last week and a huge improvement from the trough of -40% during the last five days of March (and -18% six weeks ago).
Amazingly, retail sales ex-autos is running up 3% year-over-year for the trailing seven days, (a significant acceleration from flat last week). Again, we would never have imagined that consumer spending ex-autos would be positive 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 are allowed to expire after July.
Every category has distinctly bottomed, though airlines, lodging and entertainment continue to show 55%-80% declines in revenue. Lodging is clearly improving, now running down close to 55% from 90%-100% earlier. Restaurant spending is now down only about 20% over the past week, well off the lows of down 65%-75%. Online electronics and e-commerce continue to exhibit scorching growth of 116% and 71%, respectively, on average, for the past week. We expect some of the strong COVID categories to increasingly delecerate as the economy continues to open. Grocery has flattened but is still up 9% as restaurant spending returns. Clothing spending is ramping nicely off the bottom and home improvement remains strong, as it has been for weeks now. Lastly, brick-and-mortar retail spending is showing signs of bottoming (down only 10%) and picking up as states reopen.
The fabulous news is that every category is experiencing a strong recovery and has bottomed now, even airlines and entertainment (which have been terrible for three months straight). Airlines only saw an 80% decline in spending this week, which sounds crazy but is up from down 100% or more (refunds) a few weeks ago. 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 an excellent week for our transportation indices following several strong weeks over the last month. Truckload was the best performer at 5.9% and logistics was the worst at 3.5%.
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