Post-holiday bump setting the stage for summer

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:

Post-holiday boost in volumes

Seasonal market trends have continued to appear in the freight market as volume levels have remained healthier than they were this time last year. The Memorial Day holiday provided a boost to volumes to start June, but as in years prior, volume levels have started to decline. If volumes can flatten out in the coming weeks, it sets up the market for continued volume growth throughout the back half of the year.

The Outbound Tender Volume Index (OTVI), which is a measure of national freight demand that tracks shippers’ requests for trucking capacity, is 14.4% higher week over week, but the Memorial Day holiday had an outsize impact on the seven-day rolling average last week. For weeks immediately following holiday weeks, two-week comparisons create a more accurate representation of growth or contraction in volumes. On a two-week stack, OTVI has increased by 3.81%. OTVI is 10.1% higher than it was this time last year and 15.8% higher than it was in 2019, which is expected as the overall economy has grown.

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 gain of 13.9% w/w and 3.93% on a two-week stack. CLAV is up 7.8% compared to this time last year. The smaller growth in CLAV compared to OTVI stems from rejection rates that are nearly double where they were this time last year and rising over the past week. Even though rejection rates are still in deflationary territory, the movement higher has muted the growth in CLAV when compared to OTVI.

In the most recent Bank of America card spending data, spending is slightly softer than it was this time last year, though the timing of the Memorial Day holiday is likely the cause. Overall spending through the week ending June 1 was 0.4% lower y/y. Excluding autos, spending was even more depressed, down 1.9% y/y, as entertainment, furniture and home improvement spending were all down by double digits year over year.

In the most recent Bank of America card spending report, spending continues to track above 2022 levels overall but is being led higher by services spending. Overall card spending through the week ending July 15 was 0.8% higher y/y, but it was airline spending, up 3.4%, entertainment spending, up 4.9%, and restaurant spending, up 4.7%, leading the way. Home improvement and furniture spending continue to drag on overall spending.

Amazon’s Prime Day will take place once again in July and could provide a boost to spending, especially online retail spending, which has remained fairly resilient. While Amazon is a sole retailer, others will have to react, which could create knock-on effects to spending for consumer retail as a whole.

Because of the Memorial Day holiday skewing growth on a weekly basis, volumes across nearly all of the 135 markets are significantly higher week over week. In fact, only 16 markets have volumes lower on a weekly basis, all of which are relatively small in terms of overall outbound volume. Looking at a two-week comparison, 92 of the 135 markets have experienced volume growth, which shows widespread volume growth as the summer shipping season gets underway.

The sign of healthy volume growth is the widespread growth that includes growth in the largest freight markets in the country. In Atlanta, tender volumes have risen by over 7% in the past two weeks. In Dallas, the second-largest market by outbound volume, volumes have increased by 6%. In Southern California, volumes have increased in Los Angeles and Ontario by 5.8% and 5.7%, respectively.

By mode: Like the overall market, the dry van market has experienced a sizable increase in volumes after the Memorial Day holiday. Over the past two weeks, the Van Outbound Tender Volume Index has increased by 4.12%, and it has grown by 11.67% over the past year. Compared to 2019, dry van volumes are currently 18.2% higher.

After a challenging first quarter, the reefer market has been climbing out of a hole since early April. The Reefer Outbound Tender Volume Index (ROTVI) has increased by 3.19% over the past two weeks. Reefer volumes are still challenged year over year, down 0.4% y/y. While produce season is here, many produce loads are moved on the spot market with short lead times, so the effects don’t show up in contract volumes but will appear as more challenging capacity conditions.

Capacity remains abundant but shows signs of balancing

Capacity in the freight market remains abundant, but following the Memorial Day holiday, rejection rates are following a similar trend to 2019 compared to last year. While rejection rates remain below 5%, indicating that there is deflationary pressure on rates, they have remained near the Memorial Day holiday levels.

Over the past week, OTRI, which measures relative capacity in the market, rose to 4.79%, an increase of 44 basis points from the week prior. OTRI is now 202 bps above year-ago levels and tracking closer to 2019 than 2023. 

The reaction to Memorial Day was more impressive than it was in 2023, a signal that the market is becoming more reactive to outside influences. Additionally, the lack of a substantial drop in rejection rates in the week following the holiday indicates that the market is coming more into balance and will continue to move in that direction as capacity continues to exit the market.

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, 82 reported higher rejection rates over the past week, with the largest markets in the country having some of the most significant changes.

The Dallas market, the second-largest market by outbound volume, saw rejection rates increase by 193 basis points w/w to 5.38%, the highest level since June 15, 2023. In Savannah, Georgia, produce season is in full swing as rejection rates have increased by 155 bps w/w to 10.18%.

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 (VOTRI) increased 39 bps to 4.54%, matching the Memorial Day holiday high. VOTRI is 209 bps higher than it was this time last year.

Rejection rates in the reefer market have been increasing since early May as produce season arrives across various markets in the Southern half of the U.S.. The Reefer Outbound Tender Reject Index (ROTRI) increased by 45 bps over the past week to 7.56%. ROTRI is 291 bps higher than it was this time last year but remains historically low as it continues to be below 10%.

Flatbed remains the most volatile equipment type as the Flatbed Outbound Tender Reject Index (FOTRI) has experienced multiple 500-plus-bp swings throughout the first half of the year. Over the past week, FOTRI has increased by 264 bps to 15.15%. FOTRI is 383 bps higher than it was this time last year, and if the Federal Reserve cuts interest rates, it will likely help drive industrial activity, benefiting the flatbed sector of the freight economy.

Memorial Day boost yet to disappear

Credit to carriers as they have been able to hold spot rates fairly stable following the Memorial Day holiday. This could help create a much-needed boost to rates throughout the summer months as spot rates have been bouncing along the bottom for over a year.

This week, the National Truckload Index (NTI) — which includes fuel surcharge and various accessorials — rose 2 cents per mile to $2.31. Rising linehaul rates were the sole culprit behind this week’s increase, as the linehaul variant of the NTI (NTIL) — which excludes fuel surcharges and other accessorials — rose by 2 cents per mile w/w to $1.71. 

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 10 cents per mile to 2.31. 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 63 cents below contract rates. A continued narrowing of the spread will create an environment which will feel tighter as carriers will believe they have momentum in pricing.

After bottoming in mid-April, the FreightWaves Trusted Rate Assessment Consortium (TRAC) spot rate from Los Angeles to Dallas has been grinding higher. Over the past week, the TRAC spot rate has increased by 2 cents per mile, narrowing the gap between spot and contract rates along this extremely dense lane.

A similar increase happened from Atlanta to Chicago. The FreightWaves TRAC rate increased by 2 cents per mile over the past week to $2.11. The spread between contract and spot rates along this lane is just 28 cents per mile.

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