End of the great surge? A key volume indicator has turned downward

The great trucking volume surge tied to the restocking of supplies cleaned out because of the coronavirus pandemic may be coming to an end.

The Outbound Tender Volume Index (OTVI), published by FreightWaves and available on the SONAR market dashboard, measures volume out of key freight markets. It peaked Tuesday at 12,938.94. That was almost a doubling of its post-Christmas low of 6,635.49. 

But on Wednesday, the index dropped to 12,776.81, the first one-day decline since late January.

“We may have seen the peak frenzy in domestic freight volumes,” FreightWaves’ Andrew Cox, a member of the FreightWaves Research team, wrote in the Daily Pickup for SONAR subscribers. “It has only been one day, but the outbound tender volume index fell almost 1.5% yesterday. As of Monday [March 25], OTVI was up 30% year-over-year and up over 15% above the 2018 peak (a record year for freight).”

The end to the steady increases was inevitable. Cox said he and his colleagues expected such a decline. “Our conviction over the past week was that the rise in tendered volumes was unsustainable and we felt volumes would likely fall off a cliff in the coming weeks,” he wrote. “That cliff may be coming earlier than expected as more cities and states issue shelter-at-home orders. Spot rates will remain above contracted rates as long as capacity remains near its current levels (18.25% today).”

Within the national OTVI numbers are drops in bigger markets that actually started in the last few days. The key Harrisburg market’s OTVI over the last two days declined to 444.81 from 474.96. In Allentown, it’s a three-day drop to 384.05 from 387.86.

In Los Angeles, the decline has been longer, not surprising given the falloff in Chinese imports. It’s now at 251.62 from 320.05 at the start of March. But in Ontario, California, also directly impacted by the decline in Chinese imports, the fall has been more recent, dropping to 414.26 from 432.26 after steady increases. 

The reference to the 18.25% capacity figure from Cox comes from the Outbound Tender Rejection Index (OTRI). The OTRI measures carrier willingness to accept loads tendered to them by shippers under a previously agreed upon contract. It is expressed as a percentage of loads rejected to total loads tendered. It has risen from 5.25% at the start of March to the current level of 18.25%.

In the key Harrisburg market, the OTRI is 23.86% and continues to move higher. But the inbound tender rejection index (ITRI) for Brooklyn – where drivers reportedly were refusing to go because of the prevalence of COVID-19 – the ITRI for that area is 15.8%, less than the national average of 18.33%. That number has been mostly steady for the past few days. 

If the OTRI continues to rise or stay steady as OTVI continues to fall, it could be taken as a signal that the coronavirus is starting to take some drivers off the road, either because they are sick with the virus or something else, or because they don’t want to go out onto those roads and face the pandemic. 

Cox, looking over the data, said: “Spot rates will continue to be above contracted rates for the next few weeks as rates lag behind outbound tender rejection rates (OTRI). OTRI remains elevated for a couple of reasons: the virus has taken some capacity out of the market; and the increased demand for consumer goods has left carriers inclined to test the spot market. OTRI currently sits at 18.25%, but will drop as volumes return to normal levels and drop even further when volumes get to true lockdown levels. 

In the Daily Pickup report, carrier expert Zach Strickland noted that volumes in the key market of Lakeland, Florida dropped 7.51%. “Lakeland volumes grew 70% through the first three weeks of the month, but have now changed course. Both dry van and reefer volumes fell yesterday, but van fell much more significantly. Outbound rejection rates fell slightly from 16.02% to 15.78% as well, indicating that capacity is also stabilizing.”

The surge in demand for trucking has come even as vast swaths of the economy have all but shut down. It’s been an outlier in how well it has been doing. 

Cox said the markets that are moving all the freight constitute about 60% of the usual. “The only sources of freight that are completely safe from lockdown and recessionary downside risk are food, medical supplies and consumer packaged goods (CPG),” Cox wrote. “And even the demand for many CPG products will decline significantly in the near future due to over-purchasing in recent weeks.”