Tender rejections and spot rates tumble downwards in lockstep

This week’s DHL Supply Chain Pricing Power Index: 25 (Shippers)

Last week’s DHL Supply Chain Pricing Power Index: 30 (Shippers)

Three-month DHL Supply Chain Pricing Power Index Outlook: 45 (Shippers)

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.

Transportation stocks bounced back despite poor earnings throughout our stock indices. National tender volumes are nearly identical to 2019 levels, and rejections have continued to tumble as reefer rejections fall from wintry weather highs. Economic data has come back positive overall but neutral for both shippers and carriers.

The Pricing Power Index is based on the following indicators:

Load volumes: Momentum and trend neutral

The Outbound Tender Volume Index (OTVI.USA) has continued its horizontal trajectory below its March 2018 starting point of 10,000 since it recovered from its New Year’s trough.

The index currently sits at 9,580.50, which is slightly above its yearly comparable by less than 1%. National volumes have fallen by 1.2% since our reporting last week. At this point in the year, it is important to dissect our Outbound Tender Volume Index into its two largest components: van and reefer volumes.

Van volumes in 2020 are almost identical to 2019 at this point (up 0.8%), but they had been slightly up in the low-single-digit range for the past three weeks. A different story is visible when analyzing reefer volumes. Reefer volumes had been up in double digits on a yearly basis for all of January but have now fallen in the past two weeks. Reefer volumes are now up 6% year-over-year. However, with inclement weather headed for a few major West Coast markets, reefer volumes are likely to pick up in the next week.

SONAR: VOTVI.USA; ROTVI.USA (White — Van; Green — Reefer) 

Tender rejections: Absolute levels neutral, momentum positive for shippers

After peaking at 14.25% on Christmas Day, the Outbound Tender Reject Index (OTRI) has slipped to 5.43%. This is four straight weeks of declining tender rejections off the peak. The index has now given back most of the peak season bump and has fallen further into negative territory compared to this time in 2019. The index has slipped below the 2019 average of 6.19%. We expected the decline over the past two weeks as reefer rejections tumbled. It is possible the index gets a slight boost from the wintry weather battering many large markets on the West Coast in the coming days.

SONAR: OTRI.USA (White bar — 2019 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 $1.38 per mile. Spot rates have now fallen for the past five weeks since holiday highs totaling a decline of 15%.  Spot rates are down $0.05 per mile since last week. It seems the DAT freight rate (DATVF.VNU) has peaked, at least for the next few weeks. Spot rates ended the year on a seasonal tear, increasing 15% over the last eight weeks of the year. But as we have written for the past several weeks, the January blues are in full session and we don’t expect any snapback in spot rates in the coming weeks. 


Economic stats: Momentum and absolute level neutral

According to ADP, nongovernment payrolls grew at a robust 291,000 in January, far outpacing the economists’ consensus projection of 157,000. This was the most jobs added in a single month since May 2015. Moody’s economist Mark Zandi said in the report that mild winter weather aided the number this month (particularly in weather-sensitive industries like leisure, hospitality and construction) and that true underlying job growth after stripping out one-time items is more like 125,000 per month. Zandi went on to say that this is a healthy level “consistent with low and stable unemployment.” Economists caution not to read too much into the ADP report in terms of an early read on Friday’s Bureau of Labor Statistics nonfarm payroll report as the methodologies to calculate are different and though ADP tends to be a directionally accurate predictor, the two can diverge to a material degree. Nevertheless, it is safe to say that this month’s ADP report is positive.

Unemployment (UEMP.USA) may be a lagging economic indicator, but it continues to sit at 50-year lows of 3.5%, which is a strong reading that bodes well for continued gains in consumer spending (RESL.USA) and therefore trucking volumes (OTVI.USA). This is especially true if this week’s upside surprise in the ISM Manufacturing PMI (ISM.PMI) back to expansionary territory (with a reading of 50.9) is indicative of a bottoming out or near- to medium-term recovery in industrial demand. On the latter, we are not yet seeing evidence of this in flatbed tender rejections (FOTRI.USA), which are still hovering on the lows at 4.5%.


Transportation stock indices: Absolute levels positive for shippers, momentum positive for carriers

After two weeks of rough performance, FreightWaves transportation stock indexes were all flat-to-up this week. The LTL index rose 6.4% thanks to a strong showing from Old Dominion Freight Lines (ODFL). Next, the logistics index rose 1.9% primarily due to a 3.9% gain for XPO Logistics (XPO). Truckload and parcel rounded out the bottom at 0.3% and -0.1%, respectively.

Several notable transportation companies reported earnings this week, and reactions were generally favorable despite mostly poor operating performance. Investors appear to be betting that the worst is behind us. Echo Global (ECHO) CEO Doug Waggoner projected as much when he said, “I am particularly excited about the year-over-year volume growth we’ve seen in early January, and believe the freight cycle will improve in 2020.” ECHO posted a revenue and EPS beat with better-than-expected guidance.

U.S. Xpress rallied 12% as its fourth-quarter EPS topped consensus expectations, and CEO Eric Fuller said the past four to six weeks were some of the best the carrier has seen in the past year.

Werner (WERN) posted a big EPS beat on good cost control and issued in-line guidance that many analysts believe to be conservative.

ODFL beat on earnings despite fairly sluggish operating results (by their standards) due to a weak industrial economy, but the stock jumped 5%.

For more information on the FreightWaves Freight Intel Group, please contact Kevin Hill at khill@freightwaves.com, Seth Holm at sholm@freightwaves.com or Andrew Cox at acox@freightwaves.com.

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