This week’s DHL Supply Chain Pricing Power Index: 70 (Carriers)
Last week’s DHL Supply Chain Pricing Power Index: 75 (Carriers)
Three-month DHL Supply Chain Pricing Power Index Outlook: 70 (Carriers)
The DHL 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.
The Pricing Power Index is based on the following indicators:
Load volumes: Absolute levels positive for carriers, momentum neutral
The Outbound Tender Volume Index (OTVI) on a national level has shown very little volatility over the past three weeks, walking along the x-axis at ~15,300. At the same time, tender rejections have taken a meaningful leg down, suggesting that freight demand is even stronger now than at the beginning of April.
Geographically, over the past week southern port cities have seen growth in outbound tenders. This trend should continue at most ports around the country over the next several months. As FreightWaves’ Greg Miller wrote Monday, maritime operators and importers are bracing for a shipping tsunami. Nerijus Poskus, vice president of global ocean at freight forwarder Flexport, warned the situation right now is the worst he’s ever seen, and he believes the market is deteriorating and will be even more severe in May.
Daniel Hackett, partner at Hackett Associates, a maritime consulting and advisory firm that publishes the Global Port Tracker in tandem with the National Retail Federation, said his team is increasing already record-high import forecasts over the next several months. Consumer demand has snapped back to 20% over 2019, according to Bank of America, after a multi-week lull in early April. But retail imports are outpacing retail sales, which Poskus attributed to inventory restocking. The inventory-to-sales ratio rose in February, but off an all-time-low in January.
“The restocking is actually affecting the trade even more than growth in demand. That tells me that this will last even longer. Let’s say U.S. consumer demand slows down in Q3 and Q4. That’s not expected, but even if it does, [capacity availability and rates] shouldn’t improve quickly, simply because of the huge restocking demand.” Poskus is referring to ocean trade here, but the same holds true for truckload demand.
We’ve already seen Americans begin to revert to spending on services again, but not to the goods. Spending at restaurants was up ~15% over 2019 in the week ending April 24. Spending on lodging is only down mid-single digits vs 2019, and airlines spending is now only down ~25% vs 2019. Yet, Americans are still spending 55% more on furniture, 50% more on home improvement, and ~100% more online retail spending on a two-year basis.
So, on the consumer side of freight, we’ve got unbridled demand and months of inventory restocking that will lead right into the peak fall season ahead of holiday shopping. And given the current strength in demand and consumer balance sheets, this holiday season should prove particularly strong.
Besides the consumer economy, the industrial, manufacturing, and housing sectors are all budding as well. Even if consumer demand was to wane, which is not expected, inventory restocking paired with growth in the industrial and manufacturing sectors will be plenty to keep the market strong through 2021.
SONAR: OTVI.USA (2021 – Blue; 2020 – Purple; 2019 – Green; 2018 – Orange)
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Tender rejections: Absolute levels positive for carriers, momentum positive for shippers
Carriers are still rejecting nearly one-in-four electronically tendered loads on a national level, but the index has given ground this week. Still, many regions across the country saw tender rejections creep up. Southeastern regions, including every Florida market, showed relatively tighter capacity.
Both van and reefer rejections have fallen over the past two weeks, with reefer continuing a nearly two-month descent from an all-time high following the polar vortex in February. Reefer rejections sit at 43%, down from 47% two weeks ago.
SONAR: VOTRI.USA (Blue): ROTRI.USA (Green)
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Despite OTRI falling meaningfully for the first time in weeks, I don’t believe it’s due to capacity being added to the market. Rather, it’s because contract prices continue to be rebid up. This is evidenced by spot prices falling considerably over the past several weeks, while overall freight demand has not. Freight demand is not going to abate in the next few months, and there will not be any meaningful addition to fleet capacity in the meantime. This is a carriers market and will stay such throughout the summer.
SONAR: OTRI.USA (2020/21 – Blue; 2020 – Purple; 2019 – Green; 2018 – Orange)
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Spot rates: Absolute level and momentum positive for carriers
The Truckstop.com national dry van spot rate average slid marginally for a sixth straight week this week, down 2 cents to $3.04/mile, inclusive of fuel. For this cycle-within-a-cycle created by the winter weather, it seems spot rates have peaked. That doesn’t mean we will see any significant deterioration in rates, because we won’t. It simply means the market won’t reverse course andretest recent highs anytime soon.
Despite being in the midst of produce season, reefer spot rates have seen little upward pressure as they’ve plummeted from $3.90/mile, inclusive of fuel to (an extremely high level of) $3.40.
Of the 100 lane pairings available in SONAR, more than two-thirds were negative this week. The Los Angeles market, the centerpiece of the ensuing freight tsunami, heated up this week with spot rates out of LA rising and rates into the major hub falling.
SONAR: MAPS
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Contract rates have been marked up to, and in some cases above, spot rates. Spot rates will stay elevated if the current environment of high demand and relatively scarce capacity remains. New truck orders and the ending of social distancing measures will add capacity, but questions linger: when and how much? For now, carrier networks remain strained with this level of demand, and I anticipate demand will increase from here when the produce season begins in earnest and more regional economies reopen.
SONAR: TSTOPVRPM.USA (Blue – 2021; Green – 2020; Orange – 2019)
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Economic stats: Momentum and absolute level neutral
Several economic releases this week are worth noting.
Weekly jobless claims were released Thursday and give us one of the best close-to-real-time indicators of the overall economy. For the third consecutive week, initial jobless claims fell to a pandemic low. The Labor Department reported Thursday that 553,000 Americans filed for initial unemployment benefits, down from 566,000 the previous week.
This week was another strong one for the labor market, with initial claims plummeting and continuing claims (a rough proxy for unemployment) staying fairly steady from a pandemic low last week.
While claims remain elevated, the trajectory signals that growing vaccination numbers, loosening business restrictions and warmer weather are helping to heal the jobs market.
Initial jobless claims (weekly in 2020-21)
Source: FRED
Turning to consumer spending, as measured by Bank of America weekly card (both debit and credit) spending data, total card spending (TCS) in the latest week snapped back after a breather over the past few weeks. The report this week was titled “The snooze is over”, as TCS popped up 20% over 2019 for the week ending April 24.
The main takeaways this week are that U.S. spending on both goods and services can be robust this year. Americans have reverted back to services spending on smaller ticket items, such as restaurants. Restaurant spending is up mid-teens over 2019 this week, but goods spending in COVID categories like home improvement, furniture and electronics continue to be very strong, up 50-70% over 2019.
Card spending by American consumers has a strong correlation with truckload volumes, so we will continue to monitor this data closely. The data has slowed over the past few weeks as Americans spend more on services, and go back on vacation (airline spending now only down 25% vs 2019), but but it’s a mistake to think goods purchases will implode when many goods categories are still growing 50% compared to 2019.
We still expect a near-complete reversal in terms of the winning and losing categories from a year-over-year growth perspective once a large number of Americans are vaccinated. However, at this point, the COVID winners and stay-at-home beneficiaries still haven’t dropped off much because overall spending is so strong, but previously weak categories are surging.
Source: Bank of America Securities