Capacity Shrinks Due To Lower Supply, Not Increased Volume

FREIGHTWAVES' SONAR CHART OF THE WEEK (Nov 18 -Nov 24, 2018) 

Chart of the Week: Outbound Tender Volume Index, Outbound Tender Rejection Index - (SONAR:OTVI.USA, OTRI.USA)

SONAR Chart of the U.S. outbound tender rejection index versus the outbound tender volume index moving in opposite directions.

Freight volume is not the only thing that impacts trucking capacity in the U.S. Tender rejection rates (OTRI.USA) have increased 13 percent while national volume (OTVI.USA) has decreased 0.8 percent since October 25th.

As we approach Thanksgiving there is a natural sense of urgency for shippers to fill distribution centers in order to get the stores supplied with enough inventory to allow for easy replenishment during the heavy shopping period around Black Friday. This is not only necessary for Thanksgiving week, but also the subsequent weeks as inventory drops rapidly. Inventory management during this time is crucial as vacations will limit availability of trucks for a period when demand for ad hoc equipment is high.

The transactional (spot) market reflects this each season as spot rates are driven higher preceding Thanksgiving and tend to drop for a week or two until spiking again before Christmas. Volume is not the only factor that affects rates in the market. The supply side mechanics of driver availability has just as big of an impact as volume. The issue is that most of the year driver availability is relatively consistent. Drivers will work though many of the other holiday periods to earn more money. Thanksgiving and Christmas are less appealing as they are considered "family" holidays.

The supply side is less visible in the industry and many will apply the logic that it must be a surge of volume due to the increasing rates or activity depending on your role. Shippers have no visibility to the supply side. They tend to assume volume drives most things since they are dealing with demand side economics most of the time. Even inside the carrier organization, very few individuals have visibility to total driver availability. Many big carrier fleet managers only operate a small percentage of total drivers and the smaller carriers do not have enough size to make a representative sample.

The fast pace of holiday retail shipping can also make it feel as though volume is surging as it gets busier and more frantic. Service requirements are tight and last-minute shipping is more prevalent during this time of year doubling the impact to rates.

Volume has a great impact on capacity most of the year, but the supply of drivers and trucks is much more difficult to see even though most of us will be on the same vacation next Thursday.

About Indices presented in this article

OTVI OTRI.USA) Outbound Tender Volume Index - USA - Outbound Tender Volume Index is an index that assigns a value to each market based on load volumes on March 1st of 2018. For example: If OTVI.ATL had a value of 100 on November 2nd and and value of 110 on November 3rd, load volumes increased 10 percent in a day.

OTRI Outbound Tender Rejection Index - USA - The Outbound Tender Rejection Index is the rate at which carriers reject their contracted load tenders. For example: If a shipper sends a carrier 10 loads and the carrier rejects 2 of them, the OTRI value would be 20 percent.

About Chart of the Week

The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real-time. Each week the Sultan of SONAR will post a chart, along with commentary live on the front-page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.

SONAR aggregates data from hundreds of sources, presenting the data in charts and maps and providing commentary on what freight market experts want to know about the industry- in real time.

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