The Outbound Tender Volume Index (OTVI) has been slowly slipping since Labor Day but still remains at very high levels. The index currently sits at 15,056, which is 5% lower than the beginning of the month and nearly 3% off last week. Today’s value is the lowest non-holiday value since mid-August but still well above each of the previous two years.
Despite the lukewarm recovery of the labor market, consumer spending and confidence have improved and stabilized. Retail spending (excluding auto) is up 8% year-over-year, according to the latest consumer data from Bank of America. The lack of service spending opportunities has allowed consumers to purchase more goods. There appears to be no reason to believe this trend will reverse before or during the holiday season.
As we mentioned in last week’s update, the market has not exhibited an abundance of volatility in recent weeks. There has been scattered strength in lanes across the country. On a national level, the holiday demand will fuel higher volumes and more volatility. This thesis should start to play out over the next couple of weeks. Retailers are already preparing for volatility by offering Black Friday prices and major discounts in an attempt to smooth out demand over the next 75 days.
On a negative note, only five of the 15 major freight markets that we monitor as a broad, representative benchmark were positive on a week-over-week basis. This ratio did deteriorate from much stronger levels in recent weeks but has been consistently high for months as the freight market rallies. The markets with the largest gains this week in OTVI.USA were Cleveland (5.91%), Seattle (5.48%) and Chicago (1.82%). The markets with the largest declines this week in OTVI.USA were Laredo, Texas (-11.49%), Newark, New Jersey (-10.14%), and Los Angeles (-8.19%).
Tender rejections remain elevated
This week marks the first material cooldown of the Outbound Tender Reject Index (OTRI) since the second week of September. On a national level, tender rejections are down more than 5% since last week. Although trending better for shippers, capacity is still very difficult to secure right now. OTRI still remains just above 25%, meaning 1-in-4 electronically tendered loads are being rejected at contracted prices. This week notches the sixth in row in which OTRI has been above 25%, far and away the longest such period in the index’s three-year history.
Logistics providers are feeling the challenges brought on in this tight environment. A September supply chain survey shows transportation capacity has reached new lows. The Logistics Managers’ Index (LMI), a survey of leading logistics executives, showed capacity fell to new lows, dipping another 770 basis points during the month to a 23.8% reading.
The lack of available capacity was also “reflected in the premium firms are paying.” The transportation pricing subindex of the LMI increased 410 basis points in the month to 87.9%, the highest reading since October 2018. “Observing the last two years of transportation prices shows a U-shaped trend, with September’s rate of growth representing a return to the heady days of mid- to late 2018,” the report stated.
While outbound tenders retreated slightly this week, this does not appear to be a major signal of declining demand. The next few weeks will be fascinating to see how effective shippers can be at prolonging the peak holiday season and avoiding major disruptions and delays.
Check out the newest episode of the Freight Intel Group’s podcast here.