Carriers Gain Pricing Power As Truck Capacity Continues To Tighten

Another week of tender rejections rising, another week of pricing power gains for carriers

• This Week's DHL Supply Chain/FreightWaves Pricing Power Index: 45 (Shippers)
• Last Week's DHL Supply Chain/FreightWaves Pricing Power Index: 40 (Shippers)
• Three-month DHL Supply Chain/FreightWaves Pricing Power Index Outlook: 50 (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) finished the peak holiday trucking season with a healthy dose of holiday cheer. Through Christmas Eve, load volumes were 9.96% above 2018 volumes. This made three straight weeks that 2019 tender load volumes were at least 7% above 2018 volumes. 

SONAR: 2019 Outbound tender volumes (blue), 2018 Outbound tender volumes (green)

SONAR: OTVI.USA

Tender rejections: Absolute levels and momentum positive for carriers

Outbound tender rejections have been on a winning streak for five straight weeks. Currently, OTRI sits at 14.25%, the highest level it has reached in 2019. This represents a 170% increase in the national tender rejection rate over the past seven weeks since Nov. 1. 

In fact, outbound rejection rates in all modes have been on the move since Nov. 1: 

Dry Van tender reject rates (VOTRI.USA) are up 218%.

Refrigerated tender reject rates (ROTRI.USA) are up 53%.

Flatbed tender reject rates (FOTRI.USA) are up 93%.

While this momentum will likely reverse as the peak holiday season is now over, any sign of life in tender reject rates is good news for carriers. The key indicator for the market to watch in the first quarter of 2020 is the magnitude of year-over-year improvements in tender rejections. Strong year-over-year improvements in January and February should be a leading indicator for tighter truck capacity heading into the peak summer season.  

SONAR: 2019 outbound tender reject rates

SONAR: OTRI.USA

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

Spot rates are also on the uptick. Since Nov. 1, DAT national dry van spot rates are up over 10% and now stand at $1.55 per mile. It is important to note DAT national dry van spot rates lag tender rejections by 10 to 15 working days. 

SONAR: DAT national dry van spot rates

SONAR: DATVF.VNU

Economic stats: Neutral for both shippers and carriers

According to Mastercard, retail sales excluding automobiles were up 3.4% this year. While this isn't the largest increase in American history (2017 posted gains of 5.1%), it is a substantial gain and an exhibition of the confident U.S. consumer. E-commerce sales rose 18.8% from last year and amounted to 14.6% of all retail sales this holiday season. 

Due to the later Thanksgiving and Black Friday, many retailers offered omnichannel discounts earlier than usual, which may have bolstered holiday sales. This data should come as no surprise — the University of Michigan's Index of Consumer Sentiment reached new heights this month. The U.S. consumer is confident and has more disposable income from wage growth and a slight boost from the 2017 tax cuts. 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. 

FreightWaves reporter Alan Adler wrote Dec. 26 about the glut of used Class 8 trucks and the current buyer's market. Prices for 3-, 4- and 5-year-old trucks are at three-year lows and have crashed to the downside since midsummer. Owners are waiting out the market to see if they can fetch more in the coming quarters. This is stalling new truck orders — ACT reported used Class 8 same dealer sales volumes in November fell 35% compared with October. They are off 9% year over year and 16% year to date compared with the first 11 months of 2018. It will likely take a quarter or two to work through the current glut of used Class 8 trucks. While it will be a multi-quarter process, this data indicates capacity may be slowly leaving the market. That's certainly a good sign for a line-haul rate recovery moving into 2020. 

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

The FreightWaves transportation stock indices were mixed this week with little movement in either direction. The parcel index performed the best, up nearly 1% during the busiest week for the parcel industry. Most of the gain came on the back of a FedEx FDX correction after two weeks of being hammered after poor Q3 earnings. The LTL index followed parcel, gaining half a percent. Old Dominion ODFL saved the index from following significantly due to poor trading weeks from ArcBest ARCB and YRC Worldwide YRCW. Our truckload and logistics indices were nearly unchanged despite the majority of stocks being down over the last week. 

Source: FreightWaves Logistics and Trucking Index

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.

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