Load volumes continue to soar, rising 4% week-over-week. The Outbound Tender Volume Index (OTVI) currently sits at 13,417. This freight level is remarkable for a few reasons. First, there are no signs of any sort of typical seasonality this year; secondly, other parts of the economy have stalled and unemployment remains extremely high; lastly, OTVI has crossed into uncharted territory by climbing higher than the March panic-buying spree.
The yearly comparisons are stunning — up 31% over 2019 and 34% above the 2018 value. The pace of reefer volumes slowed this week, falling 1%.
The possibility of another round of fiscal stimulus should be on both shippers’ and carriers’ minds. The unemployment benefits that have been holding up consumer spending and much of the economy expired Friday. The current expectation is that the $600 in extra unemployment compensation per week will be reduced to $200 and thereby likely result in at least modestly less consumer spending and freight demand. Republicans and Democrats are reportedly far apart in terms of what they want, but rapid passage will be important. The chance of a decision not to extend these benefits is our main worry for freight volumes in the short term.
Besides the expiration of federal benefits via the CARES Act, there is little evidence that leads us to believe freight volumes will fall off significantly in the coming weeks. The threat of lockdowns created a panic-buying situation in March, then freight volumes plummeted because the majority of businesses were closed. Now, regions are going back into lockdown but the restrictions are less severe. The sectors being locked down are predominantly service-based industries that do not move a large percentage of the nation’s freight. Consumer demand remains fairly strong given that economic backdrop. Despite this, we do not believe the typical seasonal decline will be as pronounced this year. Carriers remain in a wonderful pricing position.
On a positive note, 12 of the 15 major freight markets FreightWaves tracks were positive on a week-over-week basis. This ratio has been consistently high in recent weeks. The markets with the largest gains this week in OTVI.USA were Los Angeles (17.66%), Chicago (13.9%) and Laredo, Texas (8.82%). The markets with the largest declines this week were Indianapolis (-5.07%), Dallas (-3.86%) and Miami (-1.15%).
Tender rejections remain elevated
The Outbound Tender Reject Index (OTRI) continued exhibiting stickiness at a high level for a fourth week in a row and now sits at 19.4%. OTRI is now well above its July Fourth peak, sits even with its March 2020 panic-buying-induced peak and even crossed over 2018 tender rejection levels for the first time. We have heard from large asset-based carriers that they are rejecting more freight than they have in a very long time.
The supply-demand dynamic of May, June and July has been much different than March and April. During March we saw volumes and rejections rise in stepwise fashion to all-time highs in a matter of weeks. This time around the rise in freight volumes and tender rejections has been slower but consistently upward and gradual. As a result, it has taken longer for carriers to gain the confidence to reject contracted loads in favor of spot market options, but this dynamic could be changing.
Another difference in this tightening environment is that volumes will remain elevated for some time, unlike in April when volumes plummeted to holiday levels due to nationwide lockdowns. We should expect to see tender rejections in the double-digit range as long as volumes remain elevated — all signs point to this happening, especially if another round of stimulus is announced. From a capacity standpoint, carriers are in the best position of 2020 right now. Carriers are rejecting loads at a higher clip than at any point since the summer of 2018.
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