This week’s DHL Supply Chain Pricing Power Index: 75 (Carriers)
Last week’s DHL Supply Chain Pricing Power Index: 75 (Carriers)
Three-month DHL Supply Chain Pricing Power Index Outlook: 75 (Carriers)
The DHL Supply Chain Pricing Power Index uses the analytics and data in FreightWaves SONAR to analyze the market and estimate the negotiating power for rates between shippers and carriers.
The Pricing Power Index is based on the following indicators:
Load volumes shake off Labor Day Impacts
The Outbound Tender Volume Index (OTVI) notched yet another all-time high after erasing the Labor Day drawdown. OTVI, which is a seven-day moving average of shippers’ requests for capacity, is always significantly impacted by holidays, but leading into Labor Day, OTVI had slid by 2% due to Hurricane Ida impacting the Gulf Coast and Northeast.
After a brief dip below 2020 levels, OTVI erased the holiday noise, leading to absolute freight volumes surging back above 2020 levels. The recent increase following Labor Day brought OTVI to running up nearly 6% above 2020 levels. The comps in the last quarter are increasingly difficult, which could lead to volumes falling below year-ago levels for short periods of time.
Accepted freight volumes, which account for the tender rejections, also set a new all-time high as rejection rates pulled back following the Labor Day holiday. Accepted freight volumes are even stronger than absolute volumes, running up over 8% y/y. Accepted volumes are up over 3% during the last month, as freight demand is not subsiding leading into peak season.
The recent increases in freight volumes follow a seasonal trend, albeit at extremely high levels. Volumes typically rise throughout August, thanks to the back-to-school shopping season and the final summer push through Labor Day. During the back half of September and through freight volumes tend to stabilize before ramping up heading into the traditional peak holiday season.
All indications are that these trends may be broken this year as congestion at the ports and on the railroads will likely put further demand on truckload demand. A record number of container ships awaiting a berth at the ports of Los Angeles and Long Beach is going to put strains on surface transportation networks in the coming months as shippers move freight into strategic locations ahead of what is expected to be the strongest holiday season in recent years.
Hurricane Ida aided in slippage in overall freight volumes ahead of Labor Day, pulling volumes lower on a national level by 2%, but even impacting markets like New Orleans and Elizabeth, New Jersey, by even more.
While holiday impacts can be planned around, weather-related events like hurricanes are harder to predict. Hurricanes tend to cause markets to tighten, volumes inbound to affected markets to increase and outbound volumes to be depressed in the immediate aftermath of the storm.
There is never an ideal time for a major hurricane to make landfall, but given the constraints across domestic transportation networks, Hurricane Ida made landfall at the worst possible time. The New Orleans market, which took the brunt of the storm, had outbound volumes fall more than any of the surrounding markets, down ~40% in the week following the storm.
Absolute freight volumes in New Orleans have recovered after both Ida and Labor Day, as OTVI in the market surged to the highest levels since early July to start this week. In the past two weeks, freight volumes out of New Orleans have grown by almost 40%, erasing any impact from Ida and Labor Day. The increase over the past two weeks is the third-largest two-week change of any of the 135 freight markets within FreightWaves’ SONAR, behind Billings, Montana, and Alexandria, Virginia, two of the smallest freight markets in the country.
Hurricane Ida not only impacted outbound volumes in the New Orleans market but also impacted the Elizabeth freight market. Outbound freight volumes in Elizabeth fell by ~6% in the week after Ida, before falling further thanks to Labor Day. Even with those impacts, the recovery is on in Elizabeth.
Freight volumes out of Elizabeth have surged to the highest level since late March. Over the past two weeks, freight volumes out of Elizabeth have increased by over 15%, the most of any large freight market. In comparison, volumes out of Ontario, California, and Atlanta have increased by 3.5% and decreased by 2.1%, respectively. Inbound volumes have also returned to pre-Ida levels but are running down by 1.5% over the past month.
Overall, freight volumes will remain strong through the last week and a half of September as Q3 comes to a close. Freight demand in the maritime sector is as strong as it has been throughout the entire pandemic, which will eventually spill over into domestic transportation markets. Given the congestion on the rails and the railroads effectively pricing themselves out of any excess freight, the outlook for elevated truckload volumes into the holiday season remains strong.
Tender rejections lose head of steam in September
The Outbound Tender Reject Index (OTRI), a measure of relative capacity in the market, has taken a slight step back from recent highs. OTRI is back to below 22% after a brief stint above 23% before Labor Day. Over the past week, rejection rates have fallen by 49 basis points (bps), breaking the upward trend established in August.
Rejection rates have been relatively stuck in a range between 20% and 25% for much of the past year. Rejection has been negative year-over-year since early August, but the gap has widened over the past two weeks. The Labor Day holiday is largely impacting relative capacity as a whole.
Traditionally, rejection rates increase ahead of holidays as drivers opt to stay off the road to spend time at home. Following holidays, as drivers return to the road, tender rejection rates typically slide. Last year, rejection rates slid following Labor Day through the first half of September before relative capacity ratcheted tighter into October. It remains to be seen if this will be the case in 2021. Even if capacity doesn’t ratchet tighter in September, rejection rates above 20% signal extremely tight capacity conditions and keep upward pressure on rates.
Hurricane Ida’s impact on overall capacity was not as impactful as some hurricanes in the past given how tight the market is as a whole. Ahead of Ida making landfall, rejection rates increased by 100 bps during the week as requests for carriers to haul water, ice, food, medical supplies, generators, wood, roofing materials, etc. into the areas most affected increased.
The result of this was carriers saying no to entering these affected areas (at least under contracted rates).
The Inbound Tender Reject Index (ITRI), which is a measure of carriers’ willingness to enter a given market, spiked in both of the markets that were impacted heavily by Ida. In New Orleans, rejection rates on loads destined for the market increased by over 800 bps in a week. In Elizabeth, the increase was muted compared to New Orleans, increasing almost 300 bps in the week.
Naturally, inbound rejections into Elizabeth are much lower as carriers are willing to enter the market because finding a load out of the market is much easier than in New Orleans.
Now almost three weeks removed from Ida making landfall, inbound rejection rates into both New Orleans and Elizabeth have returned to normal levels. As risk is mitigated and carriers are less likely to get stuck in a given market, the willingness to enter a market increases, driving inbound rejection rates down as a whole.
Relative capacity across the majority of the country loosened over the past week as rejection rates in 78 of the 135 markets within SONAR are lower week-over-week. The Pacific Northwest region of the country is experiencing relative capacity tighten, especially compared to other regions as rejections across the region increased by 365 bps over the past week. Markets within the region include Seattle and Spokane, Washington, which saw overall rejection rates increase by 211 and 411 bps, respectively. Twin Falls, Idaho, the fifth-largest reefer market in the country, is also in the region and reefer rejection rates in the market increased by over 500 bps w/w, signaling reefer capacity in the Northwest is becoming difficult to secure.
By mode: Reefer rejection rates experienced a similar fate as the overall Outbound Tender Reject Index, falling after Labor Day. The slowdown in rejections on the reefer side started earlier than last year, but are ultimately following a similar trend. Reefer rejections tend to climb through the back half of September as frozen turkeys begin being shipped out to be in location ahead of the Thanksgiving holiday. Reefer capacity is tightening across the country, as reefer rejections are more than 300 bps higher than year-ago levels. Reefer capacity in the Pacific Northwest and the Southeast is tightening faster than in the rest of the country.
Dry van rejection rates remain relatively stable compared to reefer rejections through Labor Day. Over the past week, dry van rejection rates fell by 85 bps to 22.07%, which is about 100 bps lower than where rejection rates were a month ago. Dry van rejection rates are below year-ago levels, down nearly 400 bps y/y, narrowing the gap between 2020 and 2021 rejection rates.
Flatbed rejections were the most stable of the equipment type during the holiday week. Flatbed, which is the smallest of the equipment types within the SONAR platform, saw rejection rates lag behind the other two equipment types until March, when flatbed capacity ratcheted tighter. Flatbed rejections have been range-bound between 22% and 26% since mid-June.
Freight rates: Slight hiccup gives pause to positive momentum for carriers
The spot rate data available in SONAR from Truckstop.com is updated at a 10-day lag, so Hurricane Ida and Labor Day impacts are showing in the most recent week’s data.
After notching a new all-time high in four consecutive weeks, the Truckstop.com national spot rate averages faced a steep hiccup following Labor Day. A week after the dry van seven-day moving average reached $3.60 per mile, inclusive of fuel, in the week ending Sept. 5, the national dry van rate fell by nearly 11% to $3.21 per mile. The decrease was the largest single-week decrease, both in percentage and absolute terms, since the inception of the dataset in January 2019.
The pullback in spot rates is likely a short-term hiccup as freight demand is elevated on a y/y basis and capacity constraints are still firmly in place. Of the 102 spot market O-D pairs within SONAR, 88 of the lanes were lower on a weekly basis. The pullback wasn’t isolated to just the dry van market, as reefer spot rates fell by 73 cents per mile to $3.66 per mile, a 16% pullback.
Even with the pullback in the most recent data point, spot rates for both the dry van and reefer market are running above year-ago levels by 11%. The resulting increase in spot rates has helped maintain upward pressure on contract rates.
The initially reported dry van contract rate, reported on a two-week lag, has rebounded after a brief pullback in the last half of August. The most recent contract rate comes in at $2.63/mi, just 2 cents per mile off the all-time high set in mid-August. Contract rates, unlike spot rates, are just the base linehaul rate, excluding both fuel surcharge and other accessorials. Strong freight demand and tight truckload capacity have forced shippers to drive contract rates higher, leading to contract rates and spot rates converging.
One thing is for sure, even with the hiccup in spot rates, shippers are going to have to pay premiums for transportation during the fourth quarter. Unwavering freight demand and prolonged capacity constraints, which are likely to spill over into 2022, are setting up the fourth quarter for increased inflationary pressures on already elevated freight rates.
Check out the newest episodes of our podcast, Great Quarter, Guys, here.