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
As we head into an extended weekend, many of the typical pre-holiday freight trends are playing out. Tender volumes have steadily risen this week while lead times have been extended. The movements can be attributed to shippers both pulling freight forward before the holiday (and end of the month), and pushing lead times out for other shipments to after the weekend.
Outbound tender lead times pushing to the highest point in four months prior to Memorial Day.
SONAR: OTLT.USA
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This week’s movement upward was driven by dry van volumes, with the Van Outbound Tender Volume Index (VOTVI.USA) rising 3% and reefer volumes staying flat. However, over the past three weeks reefer volumes have risen 4% after tumbling for two months post-February winter vortex. I suspect we’ll see continued upward pressure from reefer volumes as we continue through the produce season and into the warm summer months elevated beverage and food consumption.
Both dry van and reefer volumes have pushed higher throughout May.
SONAR: VOTVI.USA (Blue); ROTVI.USA (Green)
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The congestion at our nation’s ports has spread from Los Angeles and Long Beach to Oakland, California. The California coastline is a parking lot of container ships, most of which are full to the brim with imports, awaiting berth. As detailed in the economic section, there are some signs that the reversion is underway with Americans paring back spending on pandemic superstar categories in favor of airlines, lodging and entertainment. But, spending remains exceptional despite the moderation, and low inventory levels offset much of the decline that will occur from slowing demand.
On the manufacturing side, the ISM Manufacturing PMI did decline 4 percentage points in April, but it’s still well in expansionary territory for the 11th consecutive month. New orders, production, imports/exports and employment are all growing. The major issues should come as no surprise: Deliveries are slowing, backlogs are growing, and inventories are too low.
In all, there are many, many catalysts to keep freight demand strong for the foreseeable future. Americans are beginning to ramp up services-based spending at a high clip, but the high savings rate is enabling it to occur without a massive detriment to goods spending. Airbnb CEO Brian Chesky said he’s seeing the biggest-ever rebound in travel in America. That may be true, but people keep buying stuff, and retailers don’t have enough of it. That will keep the freight flowing throughout the year.
SONAR: OTVI.USA (2021 – Blue; 2020 – Green; 2019 – Orange; 2018 – Purple)
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Tender rejections: Absolute levels positive for carriers, momentum positive for shippers
Unlike freight demand, the typical things we see play out on the capacity side of the equation prior to a holiday have not (at least to this point). While volumes have risen and lead times have grown, tender rejections have not pushed higher in any meaningful way as I would expect. Often prior to an extended weekend we see carriers reject more tenders as managers work to get drivers closer to home, or try to find higher-paying loads in the spot market.
SONAR: VOTRI.USA (Blue); ROTRI.USA (Green)
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Both dry van and reefer rejections, after rising to begin the week, finished lower. Both indices remain very high on a historical basis but are much better (for shippers) compared to just a few weeks ago. The Van Outbound Tender Reject Index (VOTRI.USA) sits at 25.2%, meaning 1 in 4 dry van tenders at contracted rates is being rejected nationally. Reefer rejection rates move directionally with van but are almost always higher. ROTRI.USA is down to 41.1% after touching 50% in March.
Yes, one-in-four loads being rejected is not ideal, but it’s better than 30%. It’s progress and as little of that as I’ve seen recently, I’ll happily write about it. I am unaware of any meaningful signals that capacity is being added at a rate that would change my outlook. With so many catalysts for demand, and many constraints on drivers including the Drug & Alcohol Clearinghouse, driver training school closures, and continued government unemployment benefits, the outlook is tight throughout this year and into 2022. That’s not to say we won’t see improvement as consumers revert to pre-pandemic spending habits and drivers enter or reenter the market. But I’m not expecting any quick reversal of this environment; there are simply too many catalysts driving volume and suppressing capacity.
SONAR: OTRI.USA (2020/21 – Blue; 2020 – Green; 2019 – Orange)
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Freight rates: Absolute level and momentum positive for carriers
Both spot and contract rates have pushed higher over the first two weeks of May, with contract rate growth outpacing spot. Both datasets are reported at a two-week lag, so our last data point is the week of the 14th. From mid-April to May 14, contract rates (VCRPM1.USA) rose nearly 10% to $2.50/mile, ex-fuel. Over the same period, the national dry van spot rate average from Truckstop.com in SONAR rose 6%. The current FreightWaves van contract rate is far and away an all-time high and is up roughly 50% over May 2020, FWIW.
Geographically, this week saw rejection rates rise the most in the South and Southeast, with most markets in Florida and Texas relatively tightening. If you’re a reefer carrier in the Northeast, now might be time for the annual pilgrimage to Maine to carry water bottles south.
Routing guides continue to be fortified heading into the peak summer season, and we should continue to see a convergence between spot and contract rates. But spot rates will remain historically very elevated throughout the summer as demand simply outstrips capacity.
SONAR: TSTOPVRPM.USA (Blue); VCRPM1.USA (Green)
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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. This week, the data was again very promising as the labor market continues on a steady and uneven recovery path.
Initial jobless claims last week fell to another pandemic low of 406,000, from 444,000 the prior week, the Labor Department said Thursday. This is the fourth consecutive week that claims have reached new pandemic lows.
Though job openings are at a record 8.1 million and nearly 10 million people are officially unemployed, companies are scrambling for labor. Layoffs are at all-time lows. While the jobs market still has a long way to go before it fully heals from the pandemic damage, companies are holding onto their workers amid a growing labor shortage that helped curb job growth in April.
Initial jobless claims (weekly in May 2020-May 2021)
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 grew 18% over 2019. Smoothing through the weekly gyrations, total card spending has been running at a roughly 18%-20% pace over a two-year period since mid-April. This is considerably above the average pre-pandemic two-year growth rate of about 8% (from 2012-2019).
In its most recent report, Bank of America analysts said total card spending is running up 18% over 2019. This is in line with growth over the past several weeks and indicates total spending remains robust. However, a rotation away from pandemic superstar categories to airlines, lodging and other services is underway. Bank of America is seeing softening in spending at furniture stores for the past several weeks. Indeed, the 14-day moving average over 2019 is still up 33%, but down considerably from a 59% growth rate in March. On the other side, spending on travel continues to accelerate with card spending on airfares now only down 21% over a two-year period when measured as a 14-day moving average.
One thing to note: Since Memorial Day is a moving holiday, the timing will impact annual comparisons. That means because the holiday falls later in the month this
year than in 2019, the two-year growth rate could look softer this week and stronger next. This is particularly important for furniture, a segment in which Memorial Day sales are common, so we could see a bounce back in the following weeks.
For more information on the FreightWaves Freight Intel Group, please contact Kevin Hill at khill@freightwaves.com or Andrew Cox at acox@freightwaves.com.
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