Ring The Carrier Bells: Four Straight Weeks Of Pricing Power Gains

This Week's DHL Supply Chain/FreightWaves Pricing Power Index: 40 (Shippers)

Last Week's DHL Supply Chain/FreightWaves Pricing Power Index: 35 (Shippers)

Three-Month DHL Supply Chain/FreightWaves Pricing Power Index Outlook: 55 (Balanced)

The trucking industry operates in a market based on real-time demand and supply. When demand is higher than capacity, carriers gain negotiating power for rates. When supply is higher than demand,  shippers have the advantage.

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

The Pricing Power Index is based on the following indicators:

Load volumes: Momentum and trend positive for carriers

The Outbound Tender Volume Index (OTVI.USA) is now firmly in the peak holiday trucking season. With one less week between Thanksgiving and Christmas in 2019 and an early Chinese New Year, outbound tendered load volumes are now up 8.46% year-over-year. This is also the second straight week OTVI.USA has posted year-over-year comparables above 7%. 

SONAR: OTVI.USA

Tender rejections: Absolute levels and momentum positive for carriers

Outbound tender rejections have stayed well above an established 6% resistance band for four straight weeks now. Currently, OTRI sits at 10.36%, which is a power move of 211 bps above last week's 8.25%. In fact, outbound tender rejections are at the highest levels since January, when rejection rates started its plunge, exposing a market that was flooded in truck capacity. 

Outbound tender rejections began their ascent leading into Thanksgiving and have been accelerating ever since. Over the past four weeks, OTRI.USA has risen 370bps, which is a growth rate of 65% in real terms and 51% higher than its 60-day moving average.  

SONAR: OTRI.USA

Spot rates: Absolute level positive for shippers; momentum positive for carriers 

Spot rates did dip this week 3.1%, from $1.57 per mile back down to $1.52, where we were two weeks ago based on the DAT dry van national average. Spot rates have been slightly strengthening with higher highs and higher lows since the week of Thanksgiving. The strong rise in rejection rates and the continued strength of tendered load volumes indicate to us that spot rates are likely to climb from here through at least the end of 2019.

Economic stats: Mixed but positive momentum for shippers

Last week we wrote in detail about the University of Michigan's Index of Consumer Sentiment. The American consumer has been the hero story of the economy for some time now and has continued to push the economy to new heights in the midst of an industrial and manufacturing recession and global economic slowdown. 

The November consumer sentiment score came in at 96.8, up from 95.5 in October and above consensus expectations for 94.9. Such a high level of consumer optimism has not been seen for 20 years, since the period between 1998 and 2000, when the index remained above 100 for three years straight. 

Notwithstanding near-record consumer confidence, the manufacturing sector of the economy continues to sputter. The November Institute for Supply Management (ISM) Purchasing Managers Index fell again to 48.1%, down .2% from the October total. The New Orders portion of the index decreased the most of any component, down 1.9%. Mitigating some of the decline was the Production Index, which was up 2.9%. All three major components — demand, consumption and inputs — all contracted in November. 

SONAR: ISM.PMI

Transportation stock indices: Absolute levels positive for shippers; momentum positive for carriers

Reversing some of last weeks gains, two of our four proprietary stock indices were down this week. The less-than-truckload index was down nearly half a percent, with SAIA leading the decline, down 2.04%. The parcel index was down a full percentage point and was dragged primarily by horrid FDX earnings. The truckload and logistics indices were both up — likely on news of strong holiday demand and upward price pressure on spot rates.

For more information on the FreightWaves Freight Intel Group, please contact Kevin Hill at khill@freightwaves.com, Seth Holm at sholm@freightwaves.com or Andrew Cox at acox@freightwaves.com.

Check out the Freight Intel Group's podcast Great Quarter, Guys here.

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