FREIGHTWAVES' SONAR CHART OF THE WEEK (Mar 3 - Mar 10, 2019)
Chart of the Week: Tender Volume Index, Tender Rejection Index - National (SONAR:OTVI.USA, OTRI.USA)
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National Freight volume is flat YoY, while tender rejection rates plummet. OTVI OTRI.USA)
The national Outbound Tender Volume Index (OTVI) turned one year old on March 1, and it is telling us something quite unexpected – national trucking volumes are almost exactly the same as early March of 2018. For those of us watching the freight market regularly, this may come as a surprise. Spot rates are down 10-15% YoY and tender rejection rates have dropped from over 24% a year ago to 7.26% as of March 1, indicating carriers are accepting contracted loads at the highest rates since the Tender rejection Index's (TRI) inception in early 2018. So why is there such a discrepancy between volume and capacity?
The availability of trucking capacity is not simply correlated to freight volume. There are several other factors that influence capacity and therefore rates. Volume has a definitive impact on capacity, but the rate at which it enters the market and distribution are also important factors. Volume entering the market rapidly from multiple origins is more disruptive to capacity than large volume coming from one area slowly, over a long period of time. This is basically the difference between 2018 and 2019.
It is the age-old economics 201 discussion about supply and demand. When demand (load volumes) exceeds supply (trucks) this puts upward pressure on rates. Conversely, when supply exceeds demand, rates will decline eventually.
Last week's chart discussed how it takes a long-lasting disruption to capacity to have an impact on contracted freight rates. Capacity must be limited or oversupplied for longer than a week or two to cause any significant impact to long-term trucking rates. In recent months, almost expectedly, there have been trucks available where they are needed. This has pulled spot market prices down rapidly.
The end of 2017 had multiple events that injected large amounts of freight into the national market in short periods of time. The two major hurricanes and massive amounts of retail freight flooded the market in the fall of 2017. Trucks were needed in and around Houston, Florida, and then all over the U.S. in a matter of weeks.
The end of 2018 was characterized by steadily increasing freight volumes originating from the ports, most notably the largest ports in the U.S., Los Angeles and Long Beach. Record inbound international volumes flooded the port cities from China amid the trade war concerns. The ports acted like a regulator in the way they could not offload the freight fast enough to create significant disruption. The lead time to get freight into the country helped carriers position their trucks effectively, as shippers gave them plenty of notice.
As it stands today, the southern California markets of L.A. and Ontario account for 8.15% of the total outbound volume of the contracted freight market. To put it in perspective the markets had 5.41% in early March of 2018. This volume did not come all at once like the 2017 hurricane and retail freight did in 2017. It has grown slowly over the course of the past 9-10 months and the rest of the U.S. has been relatively stable.
One of the big questions heading into spring is how well the freight market will be able to maintain this stability as volumes begin to increase in other areas of the country. This past week, 91 of the 135 markets all showed increases in volume over last month and 82 of them show week over week increases. With more freight originating from more widely dispersed markets and capacity concentrated on the West Coast, we're waiting to see how the market will react.
About the indices presented in this article
OTVI OTRI.USA) Outbound Tender Volume Index - USA - The Tender Volume Index is indexed to freight volumes on March 1st, 2018 with a base value for that day being 10,000. A value of 10,100 indicates volume is 1% higher than that on March 1st, 2018.
Outbound Tender Rejection Index- USA - The Tender Rejection Index is the rate at which carriers are rejecting their load tenders submitted by their shippers. A tender rejection index value of 10% indicates one out of every 10 loads submitted is being rejected by shippers is being rejected. An increase in tender rejection rate is an indication that capacity is declining, putting upward pressure on rates either inside the routing guides or in the spot market.
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.
The FreightWaves data-science and product teams are releasing new data-sets each week and enhancing the client experience.
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