Zooming in on tightening Dallas, Kansas City markets

Front view of sea green truck driving on empty city street

July Fourth typically brings expectations of seasonal tightening, so drivers can get in hours before the shorter workweek. The disruptive year of 2020 is no different. 

“Our data shows that Powerfleet’s over-the-road customers have not only rebounded, but have surpassed the pre-March 13th levels by nearly 7%, and only time will tell, with respect to the holidays, if the trend continues,” said Daniel Romary, vice president of data analytics and business intelligence at Powerfleet. “We are seeing a lot more activity as we observe the effects of seasonality partnered with the COVID-19 rebound.”

Zach Strickland, director of freight intelligence at FreightWaves, has been anticipating the Outbound Tender Rejection Index (OTRI) will climb, and it has. Last Wednesday, for example, it jumped to 6.73%, a significant increase from the day before and up from the year-ago figure of 5.2%. However, the OTRI is well under the industry’s expectation for the current volume levels.

“Rates are on their way up but somewhat disproportionate to volumes from a historical perspective. The OTRI will normally reach 12% when volumes are this high. 2018 was an anomaly. 2019 was a softer, less volatile year due to the oversupply situation,” said Strickland. 

Where in the U.S. is capacity tightening the most? Lubbock and McAllen, Texas, for instance, aren’t major freight markets, but Dallas, Fort Worth and Houston sit close by and have seen tightening. Other markets, like Omaha, Nebraska, Kansas City, Missouri, and Phoenix are also showing tighter capacity. 

Closer look at the Dallas market

Zeroing in on the Dallas market, you can see from the SONAR chart above that the Outbound Tender Rejection Index rate, which directly correlates with carrier profitability, is spiking significantly. Volumes are 6%-7% higher year-over-year. 

What’s driving this current condition in Dallas? A strong headhaul market. There’s more outbound freight than inbound freight, reducing available capacity in the market. The headhaul index currently sits at 81.52; anything above 50 is a strong headhaul market.

“Dallas is traditionally an even-keeled market, so any dramatic changes in market balance are going to have an increased upward pressure on rates, therefore tightening capacity as well,” said Strickland. “This is a seasonal pattern for the Dallas market this time of year. Anyone going east out of Dallas needs to watch out for tightening conditions.” 

Closer look at the Kansas City market

Approximately 1.5% of the U.S. freight market originates in Kansas City — the 19th-largest market in the country. Recently, that freight has been more consumer-oriented. The tender rejection rate over the past week has taken off and currently shows 12.3%, well above the national average of 7%. Reefer rejection rates have soared at 23%. 

“We’re beginning to see a bit more activity in the spot market with tender rejection rates coming up,” said Strickland. “Just recently, the spot market has been heating back up. Contract rates tend to be more sticky since they are annual cycle bids. Spot rates have to stay elevated for a certain period of time in order for those contract rates to follow it.

Click here for more FreightWaves articles by Corrie White.