Markets are bad, but they could be worse

This week’s FreightWaves Supply Chain Pricing Power Index: 30 (Shippers)

Last week’s FreightWaves Supply Chain Pricing Power Index: 35 (Shippers)

Three-month FreightWaves Supply Chain Pricing Power Index Outlook: 20 (Shippers)

The FreightWaves Supply Chain Pricing Power Index makes use of the analytics and knowledge in FreightWaves SONAR to investigate the market and estimate the negotiating energy for charges between shippers and carriers.

This week’s Pricing Power Index relies on the next indicators:

Volumes torn between simple and punishing comps

Volumes are trying spectacular on a weekly foundation, helped by favorable comps over a slight melancholy throughout final week’s federal vacation. Yearly comparisons are equally unhelpful, although for the other purpose: In 2022, shippers had been unusually energetic all through the primary quarter, which is historically referred to as the “quiet season” in freight. The flurry of exercise made excellent sense for the time, provided that truckload markets in 2021 held little but frustration and disappointment for shippers. 

Now, nevertheless, it’s all but sure shippers will fail to exceed and even meet final yr’s breakneck development, constrained as they are by weakened shopper demand and towering inventories. Yet volumes are outpacing the degrees of 2019 and ’20 thus far, suggesting the market’s present weak point stems from an overabundance of capability somewhat than cratering demand.

To reiterate, actions of the Outbound Tender Volume Index (OTVI) on a week-over-week (w/w) foundation is not going to be terribly informative proper now, since some delivery and receiving services had been observing Martin Luther King Jr. Day on Jan. 16. Nevertheless, OTVI did rise 4.91% w/w. On a year-over-year (y/y) foundation, OTVI is down 31.84%, although such y/y comparisons can be coloured by important shifts in tender rejections. OTVI, which incorporates each accepted and rejected tenders, can be artificially inflated by an uptick within the Outbound Tender Reject Index (OTRI).

Contract Load Accepted Volumes (CLAV) is an index that measures accepted load volumes shifting beneath contracted agreements. In quick, it’s much like OTVI but with out the rejected tenders. Looking at accepted tender volumes, we see an increase of 5% w/w in addition to a fall of 17.5% y/y. While this y/y distinction does affirm precise cracks in freight demand — and never merely OTRI’s y/y decline — are driving OTVI decrease, it’s price restating that the primary quarter of 2022 was an unusually energetic season for shippers, which thus makes for troublesome comps. At the beginning of ’22, shippers had been starting to account for the unexpected volatility of truckload markets and had been wanting to safe capability through the historically quiet season of Q1.

The Bureau of Economic Analysis launched its advance estimate on gross home product (GDP) development for This fall 2022. While the headline quantity is spectacular, rising 2.9% y/y towards consensus expectations of two.6% development, the finer particulars don’t encourage a lot confidence for truckload markets particularly. For one, a key driver of this development was shopper spending on companies, which rose 2.6% y/y. As everyone knows, companies — particularly people who noticed the best positive factors, like well being care, housing and utilities — are comparatively immaterial to freight demand. Service exports, corresponding to these associated to journey, finance and market analysis, noticed monstrous development of 12.4% y/y.

Another key driver of headline GDP development was companies’ continued accumulation of inventories, significantly within the manufacturing, mining and development sectors. As longtime readers of this column know properly, producers had been the ultimate section of the financial system that had but to expertise the identical stock glut that has affected retailers and their upstream suppliers. On the flip aspect, investments into residential housing fell 26.7% y/y, compounding Q3’s decline of 27.1% y/y.

For freight markets, a very powerful surrogate for future shopper demand is arguably actual ultimate gross sales to personal home purchasers, which excludes web exports, inventories and authorities spending. In This fall 2022, these gross sales rose solely 0.2% on an annual foundation, down from 1.1% in Q3 and the slowest tempo of development seen because the COVID-affected Q2 2020. Adding gas to this hearth was December’s knowledge on sturdy items, a big driver of truckload volumes. After excluding protection spending and plane orders, expenditure on sturdy items was down 0.2% from November and up solely 3.33% y/y, properly outpaced by inflation.

Of the 135 whole markets, 96 reported weekly will increase in tender quantity as truckload markets breezily outpaced a holiday-affected week.

Since most markets confronted simple comps this week, it’s price these by which the native OTVI underperformed towards the nationwide index. The port metropolis of Houston, the fourth-largest market by outbound quantity, noticed volumes rise solely 3.02% w/w. The market of Ontario, California, which advantages from import volumes coming into the close by Ports of Los Angeles and Long Beach, equally noticed freight demand rise solely 3.3% w/w. Both markets will possible endure from a dearth of ocean bookings out of China earlier than it started its 15-day Lunar New Year celebrations, signaling weakened stateside demand.

By mode: Van volumes are the important thing driver behind the nationwide OTVI’s rebound from final week’s lull, because the Van Outbound Tender Volume Index (VOTVI) is up 4.96% w/w. While VOTVI stays beneath year-ago ranges by 32%, a lot of this distinction can be attributed to the hole in van rejection charges between final yr and the current day. Accepted van volumes are however down 18.4% y/y.

Reefer volumes are practically the mirror reverse, because the Reefer Outbound Tender Volume Index (ROTVI) is barely up 3.6% w/w. ROTVI can be down 32% y/y, but the hole between reefer’s rejection charges from final yr and now could be a lot wider than that of van’s. Accepted reefer volumes are truly up 2% y/y, pushed by continued positive factors within the Pacific Northwest.

Tender rejections hit new low

After shedding its vacation positive factors with unprecedented haste, OTRI has tumbled to its lowest stage within the dataset — excluding the pandemic-induced lows of early 2020, which stretched OTRI past the bounds of its regular peaks and valleys. In 2019, the yr of the business’s final recession, OTRI hit a yearly low of three.78%. Before this week, that determine was correctly thought of to be OTRI’s ground. On Wednesday, nevertheless, OTRI hit a brand new low of three.76%.

Over the previous week, OTRI, which measures relative capability out there, fell to three.78%, a change of 10 foundation factors (bps) from the week prior. OTRI is now 1,652 bps beneath year-ago ranges.

A lot of trucking-related bankruptcies and layoffs have popped up within the information. Uber Freight introduced it is laying off roughly 150 employees, or 3% of its whole workforce, from its brokerage division. These layoffs is not going to, nevertheless, affect any of the workers within the legacy Transplace division, which Uber Freight acquired in late 2021. Art Mulder & Sons Trucking, a Michigan asset-based LTL carrier that specialized in reefer, is liquidating its belongings. At a semiconductor plant in Austin, Texas, Ryder System Inc. is laying off over 800 employees, partially in response to the plant’s shift to insourcing logistics.

Despite these items of reports, carriers are rising extra optimistic about their future prospects than they had been final quarter. According to a latest survey performed by FreightWaves, carrier sentiment increased from Q4 2022 to Q1 2023, unlike their shipper and broker counterparts. Although carriers’ sentiment index on near-term profitability declined from minus-2.83 to minus-8.63, their outlook on long-term profitability jumped from 4.43 to 11.46 — these indices are ranked on a scale from minus-100 to 100, with a optimistic worth indicated growth and a unfavorable one pointing to contraction.

One trigger for celebration is a brand new piece of bipartisan laws launched within the House of Representatives that may award tax credit to drivers and funding for truck parking. The invoice, cutely named the Safer Highways and Increased Performance for Interstate Trucking (SHIP IT) Act, would award CDL-holding drivers as much as $7,500 in tax reduction and quit to $10,000 for brand spanking new entrants to the business. $755 million, to be disbursed over the subsequent 4 years, can be put aside for each the development of recent and growth of preexisting truck parking tons. While many delivery teams have voiced their help of the invoice, the Owner-Operator Independent Drivers Association reserved a number of critiques for the invoice’s failure to handle a handful of points behind driver retention, together with lengthy wait instances at delivery services.

The map above reveals the Weighted Rejection Index (WRI), the product of the Outbound Tender Reject Index — Weekly Change and Outbound Tender Market Share, as a solution to prioritize rejection fee adjustments. As capability is usually discovering freight this week, no areas posted blue markets, which are normally those to give attention to.

Of the 135 markets, 69 reported larger rejection charges over the previous week, although 46 of these reported will increase of solely 100 or fewer bps.

In phrases of rejection charges, the Seattle market has been on a curler coaster up to now in 2023. After getting into the yr with an area OTRI above 10%, rejection charges shortly plummeted beneath 1.3%. Then, within the following week, Seattle’s OTRI climbed to six% earlier than falling 489 bps w/w to 1.09%, the place it sits presently. Washington continues to be delivery produce like apples, onions, potatoes and pears, including to the area’s volumes.

By mode: Flatbed rejection charges have been falling stepwise because the starting of the yr, when the Flatbed Outbound Tender Reject Index (FOTRI) was above 20%. With the aforementioned report that the manufacturing and development sectors have primarily rebuilt their inventories amid weakened demand, the close to future for flatbed markets is none too favorable. For the time being, FOTRI is down 141 bps w/w at 12.07%.

Van rejections are in a equally dangerous manner, although they are a lot nearer to their ground than some other mode. In August 2019, the Van Outbound Tender Reject Index (VOTRI) bottomed out at 3.29% — once more, excepting pandemic-induced lows. This week, VOTRI fell 21 bps w/w to three.5%. The Reefer Outbound Tender Reject Index (ROTRI) was the one mode to see positive factors this week, with ROTRI rising 46 bps w/w to five.91%. Unlike VOTRI, reefer rejections are presently a lot decrease than they ever had been in 2019, when ROTRI reached a yearly low of 8.61%.

Carrier charges endure from vacation hangover

In addition to a record-low OTRI, the dramatic decline in provider charges was the most important issue behind this week’s PPI falling to 30. While it was extensively anticipated that provider charges would be unable to retain their vacation positive factors, contract charges shortly fell to 2022’s low — a stage that not solely undid the entire prior yr’s will increase but additionally set the clock again to Q3 2021. Spot charges, in the meantime, traveled again in time even additional, reaching lows not seen since February 2021. If the unfold between contract and spot charges continues to slender all through February, the PPI will nearly definitely fall to 25 and even 20.

This week, the National Truckload Index (NTI), which incorporates gas surcharges and different accessorials, fell 6 cents per mile w/w to $2.54. The fluctuation of diesel costs stays a nonfactor on the NTI’s motion. The linehaul variant of the NTI (NTIL) — which excludes gas surcharges and different accessorials — equally fell 6 cents per mile w/w to $1.82.

Contract charges, which exclude gas surcharges and different accessorials just like the NTIL, fell 4 cents per mile w/w to $2.59. Since contract charges are reported on a two-week delay, present knowledge reveals 2023’s headwinds as much as mid-January. In most quarters, contract charges don’t see their fullest affect till the tip of the primary month, which means these charges could nonetheless reverse their present losses over the subsequent two weeks. But given the quite a few sources of downward stress on contract charges, I proceed to consider such a reversal is extremely inconceivable.

The chart above reveals the unfold between the NTIL and dry van contract charges, revealing the index has fallen to all-time lows within the knowledge set, which dates to early 2019. Throughout that yr, contract charges exceeded spot charges, resulting in a file variety of bankruptcies within the area. Once COVID-19 unfold, spot charges reacted shortly, rising to file highs on a seemingly weekly foundation, whereas contract charges slowly crept larger all through 2021.

This unfold has narrowed considerably over the previous few weeks, tightening by 20 cents per mile since mid-December. But because the linehaul spot fee stays 60 cents beneath contract charges, there may be nonetheless runway for contract charges to say no through the coming months.

The FreightWaves TRAC spot fee from Los Angeles to Dallas, arguably one of many densest freight lanes within the nation, is slowly reaching new lows within the knowledge set. Over the previous week, the TRAC fee fell 1 cent per mile to $2.27. The every day NTI (NTID), which has fallen to $2.54, continues to outpace charges from Los Angeles to Dallas.

On the East Coast, particularly out of Atlanta, charges are declining extra shortly but stay consistent with the NTID. The FreightWaves TRAC fee from Atlanta to Philadelphia fell 11 cents per mile this week to achieve $2.54. Except for the latest vacation run, charges alongside this lane have been dropping stepwise since mid-July, when the TRAC fee was $3.48 per mile.

For extra data on the FreightWaves Passport, please contact Michael Rudolph at [email protected] or Tony Mulvey at [email protected].