This week’s DHL Supply Chain Pricing Power Index: 20 (Shippers)
Last week’s DHL Supply Chain Pricing Power Index: 25 (Shippers)
Three-month DHL Supply Chain Pricing Power Index Outlook: 55 (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.
With all our major indices flat-to-down slightly this week, we feel shippers have gained marginal pricing power this week. It is a case of “no good news is bad news” this week for the carriers. Economic data was positive for both sides this week, but not enough to halt a slight power loss to the shippers.
The Pricing Power Index is based on the following indicators:
Load volumes: Momentum and trend neutral
It feels like a broken record, but once again volumes are flat week-over-week. Currently, OTVI sits at 9,633.15 which is 33 basis points above last week. National outbound volumes have been trending down slightly since the beginning of December 2019 – down 8% since Dec. 1st. Due to relatively easy comparisons, volumes are now up nearly 2% over 2019 data. This should not be taken as a sign of strong demand, but rather a lack of demand to begin last year.
Less wintery weather across the Midwest and Northeast has eliminated the demand for reefer trailers for some products. Reefer volumes have tumbled nearly 10% in the past three weeks. Our outlook for volumes for the remainder of the first quarter is blurred by the effects of the coronavirus on global trade flows. Until we have more visibility from people outside Beijing, it is difficult to properly determine what the impact will be on U.S. truckload volumes in the short term.
SONAR: VOTVI.USA; ROTVI.USA (White — Van; Green — Reefer)
Tender rejections: Absolute levels and momentum positive for shippers
After peaking at 14.25% on Christmas Day, the Outbound Tender Reject Index (OTRI) has slipped to 5.78%. OTRI has now increased for two weeks in a row, but by less than 1% each week. These two weeks have been the first since after Christmas in which our proxy for capacity increased on a national level. However, the rise is marginal and shouldn’t be seen as a tightening capacity environment. Capacity is still extremely loose – OTRI is below last year’s average.
Spot rates: Absolute level positive for shippers, momentum neutral
Spot rates have tumbled from Christmas highs of $1.62 per mile to a current $1.32 per mile. Spot rates have now fallen for the past seven weeks since holiday highs; a decline of 18%. Spot rates are down sharply (3.87%) per mile since last week. It seems the DAT freight rate (DATVF.VNU) has peaked, at least for the next few weeks.
We do not believe we have seen the bottom quite yet for spot rates. In the coming weeks, it is likely spot rates will fall further. With that said, we do believe once the freight impacts from the coronavirus have been worked through, spot rates are in a position to move up when that freight hits U.S. coasts.
Economic stats: Momentum and absolute level neutral
This week saw the release of the Federal Reserve minutes from January. Many market observers noted that the change in language could be laying the groundwork for possibly one or more Fed rate cuts in 2020. In the minutes, it appears as though the Fed may be looking to generate higher inflation readings, in addition to being concerned about the spread of the coronavirus, which suggest a rate cut could be on the horizon. In the latest Fed fund futures from yesterday from the Chicago Mercantile Exchange (CME), traders are predicting a 93% chance of one rate cut and a 65% likelihood of two.
In terms of the freight markets, a Fed rate cut encourages and makes borrowing cheaper for both consumers and businesses, ultimately leading to more freight volumes (at least in theory). And higher inflation readings would likely be bullish for trucking rates.
Strong home building starts continued their momentum, with January new home starts coming in at 1.57 million compared to the 1.43 million consensus and up 21% year-over-year. In addition, the leading indicator of new home permits also beat expectations. This is a bullish data point for flatbed, open-deck and specialized trucking.
Finally, Walmart (WMT) reported earnings this week and missed on all metrics. WMT’s adjusted earnings per share came in at $1.38 compared to a consensus of $1.44, sales of $141.7 billion missed expectations of $142.5 billion, and same-store sales (SSS) were up 1.9% compared to the 2.4% consensus. For fiscal 2021, WMT expects SSS growth of 2.5% relative to the consensus of 2.8%. Walmart is an important bellwether to watch to determine the health of the overall economy and the strength of the U.S. consumer; its sales account for nearly 7.5% of total U.S. retail spending. Despite this seemingly bad news, the stock finished the day up and the report has some positive implications for trucking markets.
On the conference call, Walmart’s management noted particularly strong sales in grocery and consumables, which accounts for roughly half of the chain’s overall sales and is a positive for reefer outbound tender volumes (ROTVI.USA) and reefer tender rejections (ROTRI.USA). This aligns with the stronger performance of the reefer market relative to dry van and flatbed in recent months. Given this news, it appears that this divergence could continue. For example, reefer outbound tender volumes year-over-year growth (ROTVIY.USA) is currently running at 6.8% relative to overall outbound tender volumes year-over-year growth (OTVIY.USA) of just 1.6%. Finally, reefer outbound tender rejections (ROTRI.USA) are currently running at 11.4%, more than double the rate of overall outbound tender rejections (OTRI.USA) at 5.6%.
Transportation stock indices: Absolute levels positive for shippers, momentum positive for carriers
This past week was an interesting one for our FreightWaves publicly traded stock indexes as three out of four finished this week up meaningfully, with the big exception being our Truckload index. It was down 3.1% – mainly due to a big selloff in Ryder.
Ryder reported disappointing earnings last week, with the brunt of the miss coming from elevated depreciation expenses tied to losses in the value of used trucks.
On the positive side, our Logistics index led the way at up 1.7%, driven by a 4.8% increase in XPO Logistics (XPO). Finally, our LTL index rose 1.4% and our Parcel index rose 0.6% this past week.
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