Post-Fourth of July blues

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

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

Three-month FreightWaves Supply Chain Pricing Power Index Outlook: 35 (Shippers)

The FreightWaves Supply Chain Pricing Power Index uses the analytics and data in FreightWaves SONAR to analyze the market and estimate the negotiating power for rates between shippers and carriers.

This week’s Pricing Power Index is based on the following indicators:

Positive volume momentum stalls in the summer heat

Traditionally, July is a softer month for freight after a build up to the end the first half of the year and ahead of the peak season. So far though, nearly halfway through the month, that is holding true. Freight volumes have come back slightly softer than prior to the holiday.

The Outbound Tender Volume Index (OTVI), which is a measure of national freight demand that tracks shippers’ requests for trucking capacity, is 2.94% lower on a two-week stack, as the seven-day moving average skews week-over-week (w/w) comparisons around holidays. Volume levels have softened over the past month, falling by 2.11%, but much of that softness is against strong comps following the Memorial Day holiday compared with post-Fourth of July holiday numbers.

Contract Load Accepted Volume (CLAV) is an index that measures accepted load volumes moving under contracted agreements. In short, it is similar to OTVI but without the rejected tenders. Looking at accepted tender volumes, we see a drop of 1.91% on a two-week stack. CLAV is up 5.12% compared with this time last year, narrowing from the pre-holiday gap of over 8% growth year over year (y/y). The narrower gap with one-year-ago levels is primarily due to timing of the Fourth of July holiday, while the day of the week that the holiday occurred on is also having an impact (Thursday this year compared to Tuesday in 2023).  

Bank of America’s most recent card spending report highlights that June was a challenging month in terms of spending. Overall card spending per household was down 0.5% y/y and down 0.1% month over month (m/m) in June. Across most of the categories tracked by the bank, spending was lower m/m, but categories like gas spending was likely caused by lower prices as opposed to decreased demand. Online retail has been an area of growth m/m for two consecutive months, rising 1.4% m/m in May and 0.6% m/m in June. With Target’s Circle Week occurring this week and Amazon’s Prime Day happening on July 16-17, online retail will likely continue to be an area of growth in July.

With freight volumes falling slightly on a national level, most of the freight markets in the country experienced falling volumes as well. Of the 135 freight markets across the country, just 38 experienced volume growth over the past two weeks. But even with the majority of markets experiencing volume-levels decline w/w, some of the largest markets in the country experienced growth.

The Dallas market has been one of the strongest markets throughout the first half of the year and that carried into the second half. Over the past two weeks, volume levels in Dallas have increased by 5.56%. In the Northeast, which has been an area of the country that has been well supplied with capacity, volume levels in Harrisburg, Pennsylvania, have increased by over 8% in the past two weeks.

By Mode: The dry van market experienced a slowdown in volumes to close out June and, as a result, the Van Outbound Tender Volume Index has dropped by 3.08% in the past two weeks and is down nearly 5% over the past month. Evenso, dry van volumes are up over 6% in the past year, though excess truckload capacity has masked the volume growth.

The past two weeks have been less kind to the reefer market, but volumes are still in a better position than they were this time last month. The Reefer Outbound Tender Volume Index is down 4.11% over the past two weeks, but is still 2.57% higher than it was this time last month.

Rejection rates falling, but in line with 2019

Capacity has been quick to return to the market following the Fourth of July holiday as tender rejection rates have quickly retreated from recent highs. This quick retreat from the holiday highs is eerily similar to the market’s reaction in 2019 as the tender rejection rates in 2024 and 2019 nearly overlap one another.

Over the past week, Outbound Tender Rejection Index (OTRI), which measures relative capacity in the market, fell to 5.13%, a decrease of 103 basis points from the week prior. OTRI is now 191 bps above year-ago levels and just seven bps below 2019 levels.

A positive sign that a potential market inflection is on the horizon is that rejection rates peaked higher than they did in 2019 for the Fourth of July holiday. Tender rejection rates peaked at 6.59% on July 2 of this year, 35 bps higher than the July 2019 peak. Rejection rates for the rest of the month and for the first part of August will likely be under pressure, similarly to 2019, but if they were to flatten out around 5%, it could create a second half of the year that feels much tighter than it has the previous two years.

The map above shows the Outbound Tender Reject Index — Weekly Change for the 135 markets across the country. Markets shaded in blue are those where tender rejection rates have increased over the past week, while those in red have seen rejection rates decline. The bolder the color, the larger the change in rejection rates. 

Of the 135 markets, only 40 reported higher rejection rates over the past week as a result of capacity returning to the road throughout the week. 

With Hurricane Beryl making landfall in Texas, specifically around the Houston market, there has been slight disruption to networks in the market. Over the past week, tender rejection rates in the Houston market have increased by 115 bps to 7.24%, the second highest level of the year. While the storm wasn’t as severe as it was when it moved across the Caribbean Sea, it created a disruption for about a day or two. This disruption has a ripple effect on transportation networks that can take up to a week to smooth out, as pickups were missed or carriers opted for driver safety holding equipment outside of the market.

So while freight is at a premium for carriers at the moment, they have resorted to other markets, leaving Houston somewhat undersupplied. So while Houston has experienced an increase in tender rejection rates, markets like Atlanta, Dallas and Memphis all experienced rejection rates decline w/w by 129 bps, 172 bps and 353 bps, respectively.

By mode: Capacity in the dry van market remains the loosest of the equipment types, which isn’t a surprise given the size of the market relative to the others. Over the past week, the Van Outbound Tender Reject Index decreased 118 bps to 5.27%.

After trending higher for a couple of months, reefer rejection rates have retreated as well. The Reefer Outbound Tender Reject Index fell by 78 bps over the past week to 8.38%. While the figure is still depressed compared to historical levels, it’s more than doubled since early May.

Flatbed tender rejection rates have fallen rather quickly from levels experienced throughout much of the first half of the year. Over the past week, the Flatbed Outbound Tender Reject Index fell by 162 bps to 6.47%, slightly lower than it was this time last year. The flatbed sector would be a beneficiary from an interest rate cut as it would be a driver of activity, especially in housing which has been challenged in the past two months.

Spot rates retreating, but still elevated in comparison to the rest of the year

Those that remained on the road around the holiday felt some level of relief as spot rates maintained positive momentum that was established ahead of the Memorial Day holiday. After the holiday, spot rates have started to retreat, but are still elevated compared to where they have been for much of the past year.

This week, the National Truckload Index (NTI) — which includes fuel surcharge and various accessorials — fell 4 cents per mile to $2.36, but is 8 cents per mile higher than it was a month ago. Linehaul rate declines weren’t as severe as the NTI, as the linehaul variant of the NTI (NTIL) — which excludes fuel surcharges and other accessorials — fell by 5 cents per mile w/w to $1.76, up 7 cents per mile higher than it was this time last year.

For many, cost savings from transportation have already been felt, and the key in contract negotiations is turning to service. Over the past year, the initially reported dry van contract rate (VCRPM1.USA), which excludes fuel surcharges and accessorials, has fallen by 12 cents per mile to $2.29. But since November, VCRPM1 has been within a 9-cent-per-mile range, excluding the holidays, signaling that while many are still looking for aggressive rate reductions, the overall market has stabilized.

The chart above shows the spread between the NTIL and dry van contract rates, which has been trending back toward the pre-pandemic average, though it remains extremely wide. The spread has narrowed by 15 cents per mile over the past year, but spot rates are still 56 cents below contract rates, narrowing seven cents per mile over the past month. A continued narrowing of the spread will create an environment that will feel tighter because carriers will believe that they have momentum in pricing.

The FreightWaves Trusted Rate Assessment Consortium spot rate from Los Angeles to Dallas experienced positive momentum despite rejection rates declining throughout the past week. The TRAC rate from Los Angeles to Dallas increased by 9 cents per mile to $2.29 per mile, just 22 cents below contract rates along this lane.

A lane where spot rates have crossed over contract rates is the lane from Los Angeles to Denver. Over the past week, spot rates have increased by 12 cents per mile to $3.59 per mile, the highest they have been. Spot rates are 31 cents per mile higher than contract rates, leaving this lane exposed to increased rejection rates as carriers have found some momentum leaving the headhaul market like Los Angeles and entering a backhaul market like Denver. This is a trend that is happening across many lanes from Los Angeles with loads going to backhaul markets.

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