Trucking volumes spike despite— because of—coronavirus concerns

Chart of the Week:  Outbound Tender Volume Index – USA  SONAR: OTVI.USA 

People have been clearing store shelves in parts of the country as if they were preparing for a zombie apocalypse this past week. This mass purchasing—or threat thereof—has spiked trucking volumes in the U.S. as the national Outbound Tender Volume Index (OTVI) increased 9.3% last week to hit a level normally only seen around a holiday period in the summer or winter with a value above 10,800.

The coronavirus has expanded in the U.S. after the first
case was reported in Washington state in January. Currently there are 312
confirmed cases in 28 states
, which is sure to have grown by the time you
read this. Whether or not one believes the virus is significant threat to national
health or not, the reaction is real. This is not the exact scenario many in the
trucking industry were expecting as Chinese production slowed to a minimum in
reaction to the outbreak. What does this mean for the rest of 2020?

The OTVI is an index with a base value of 10,000 based on
trucking volumes on March 1, 2018. The current OTVI value of 10,852 indicates
there are approximately 8.52% more shipments in the U.S. than there were on the
create date.

To provide context on just how significant this is, before Thursday, the OTVI has only been above 10,700 on 33 of the 735 days of its existence with most of those occurring in a single month. 30 of those days occurred between June 5 and July 3 of 2018, when the freight market was at its busiest level and capacity at its tightest in over a decade.

Tender rejection rates spiked in a similar way only seen prior to a holiday this week. (Chart: National Outbound Tender Rejection Index – OTRI.USA)

Capacity has tightened as a result of the surging volumes. The Outbound Tender Rejection Index (OTRI) that measures the rate at which electronically tendered loads are rejected, has climbed from 5.3% on March 1 to 6.52% by March 6. Increasing OTRI values are an indication that carriers are less able to fulfill the needs of their customers by having trucks available to pick up their freight. The number itself is not so shocking, but the magnitude, direction, and timing are.

Seasonal volume surges are normal this time of year, but this is a statistical anomaly that is not driven by a single commodity or region in the U.S. Volumes have increased in 96 of the 135 markets in the U.S. over the past week with rejection rates increasing in 100 markets.

Many were expecting volumes to slide in connection to the lost import volume originating from China, which represents roughly 22% of the total U.S. import volume. The opposite has occurred, but this could be the beginning of a bumpy ride over the next several months.

Increased consumption has shippers moving inventory from regional warehouses and distribution centers to storefronts. Loads that move less than 450 miles have increased over 13% this week with loads moving 450+ miles only increasing 4.7% by comparison.

U.S. inventory levels were higher in 2019, resulting from a slower economy and trade war adjustment by shippers. (Chart: SONAR – Total Business Inventory to Sales Ratio TBIS.USA)

As strange as it may seem, the timing of the coronavirus
outbreak may have been somewhat ideal for shippers. Most of the inventory
levels have been increasing over the past year, resulting from the recent trade
war concerns. According to the Census Bureau the inventory to sales ratio,
which measures how many months of inventory businesses are keeping in relation
to sales rates, inventories grew from 1.34 to 1.4 months in 2019 where it
hovered through most of the year. Looking back over the past 20 years, this is a
historically high number.  

Compound this with the fact most shippers import a
significant amount of freight into the country in preparation for the Chinese
New Year (CNY) dead period when production levels fall dramatically, meaning U.S.
inventories may have been at their annual and cyclical peak as the virus hit.

It takes 2-4 weeks for freight to hit the U.S. ports from Asia, and another several weeks before that freight is offloaded from the ship and de-containerized in a distribution center. As inventory levels fall at a faster than expected rates the well may run dry leading to rapidly declining volumes before China can fully recover, but this is assuming the U.S. remains operational throughout the outbreak.

If companies slow domestic production and activity attempting to contain the spread of the virus, trucking volumes should decline, but trucking companies may do the same thing resulting in reduced supply of trucks. To say the least, there is no clear road through this. There are still many unknown factors revolving around this event, and most of the answers lie in how people will react as the virus inevitably spreads throughout the U.S.  

About the Chart of the Week

The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real-time. Each week a Market Expert will post a chart, along with commentary live on the front-page. After that, the Chart of the Week will be archived on for future reference.

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