This week’s DHL Supply Chain Pricing Power Index: 70 (Carriers)
Last week’s DHL Supply Chain Pricing Power Index: 70 (Carriers)
Three-month DHL Supply Chain Pricing Power Index Outlook: 65 (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:
Tender volumes decline but remain elevated compared to ‘normal years’
Tender volumes are sliding ever so slightly after erasing all of the holiday noise. The Outbound Tender Volume Index (OTVI), which is a measure of electronically tendered requests for capacity from shippers, is holding on to the 15,000 level.
The week-over-week (w/w) comparisons in tender volumes are heavily skewed due to the impacts of the Thanksgiving holiday. The current comparison has tender volumes up over 32% w/w, but that number should normalize in the back half of the week.
Now a full week into December, freight volumes have followed a seasonal pattern, rebounding to pre-peak levels. However, as December pressed on in both 2019 and 2020, tender volumes fell throughout the month before having another holiday-impacted period with both Christmas and New Year’s. While it remains to be seen what happens with tender volumes over the rest of the month, expect that there may be some downward movement in tender volumes in the coming weeks.
OTVI, which includes both accepted and rejected tenders, doesn’t necessarily show the whole picture, especially as tender rejection rates have been declining since March. When OTVI is adjusted by the Outbound Tender Reject Index (OTRI), volume levels are continuing to outperform 2020 levels, currently up 3% y/y. Since the beginning of Q4, accepted tenders are down 3%.
Where do volumes go from here?
Inventory levels are still being replenished, with Walmart, one of the nation’s largest retailers, noting that levels are up 10% y/y. The inventory-to-sales ratio is still depressed compared to pre-pandemic levels, so as retailers continue to build inventory levels, tender levels will benefit.
Additionally, the consumer continues spending, with Bank of America’s total card spending continuing to run up 16.5% on both a one- and two-year basis.
A slowdown in consumer spending will likely be a catalyst for freight volumes to continue the slide into the first quarter of 2022, which is already the traditionally softest quarter for freight.
How skewed are freight volumes due to erasing the noise surrounding Thanksgiving? Of the 135 freight markets tracked by FreightWaves SONAR, 132 reported higher tender volumes over the past week. Of the 132, 129 of the markets reported double-digit week-over-week increases.
Tender volumes in the second-largest market in the country, Atlanta, have grown by nearly 2% over the past two weeks. This means that freight in the market continues to flow through networks. Tender volumes in the largest market in the country are over 14% lower than two weeks ago.
By mode: Like the overall index, both reefer and van volume comps are difficult to measure due to the holiday. The Reefer Outbound Tender Volume Index (ROTVI) rebounded by 20% w/w but is down nearly 7% from two weeks ago. The Dry Van Outbound Tender Volume Index (VOTVI) has had a better two weeks than the reefer side but is still down nearly 4% over the last two weeks.
Tender rejection rates have found some stable footing
Rejection rates are stabilizing between the 19% and 20% range, indicating that the marketplace is still extremely tight. The tightness currently experienced in the market isn’t necessarily a surprise given the time of year and the capacity constraints placed on the market throughout the entire year.
The Outbound Tender Reject Index (OTRI) fell by 84 basis points (bps) over the past week, which is a relatively small move for the index. The pullback in rejections indicated that conditions over the past couple of days may have been easing.
The market didn’t tighten to the extreme around Thanksgiving like it did in 2019 and 2020 but did experience a slight uptick in rejection rates heading into the holiday. Following the holiday, rejections have fallen by 111 bps over the past two weeks, and leading into the Christmas and New Year’s weeks, expect that capacity conditions will stay similar to where they are now before tightening right ahead of each holiday.
The slight downward movement in the overall tender rejection means that most of the country experienced relative capacity loosening. Of the 135 markets, just 45 experienced rejection rate increases the past week.
The map above shows the Weighted Rejection Index (WRI), the product of the Outbound Tender Reject Index — Weekly Change and Outbound Tender Market Share, as a way to prioritize rejection rate changes. A blue market is any market that is tightening faster, highlighting increased prices as well as markets that should take priority. Conversely, red markets are loosening faster relative to the size of the market, where shippers are gaining some pricing power.
The only market that is really tightening at a rapid pace at the moment is Nashville, Tennessee. The outbound rejection rate in the market has jumped over 700 bps since Saturday, now sitting at 32.72%. The increased rejection rate signals that more spot activity could be arising, placing pricing power into the carrier’s hands.
By mode: Reefer capacity is still extremely tight, although rejection rates have fallen significantly over the past two weeks. The Reefer Outbound Tender Reject Index (ROTRI) has fallen by 172 bps over the past two weeks to 35.55%. Reefer rejections are well off the high, which was close to 50% earlier in the year, but are still elevated compared to norms, indicating that capacity is still quite difficult to secure.
The Van Outbound Tender Reject Index (VOTRI) experienced a downward move over the past two weeks, falling 111 bps, right in line with the overall index. Though van rejection rates have been trending downward, capacity is still hard to come by, but higher contract rates explain the downward move. Overall, VOTRI remains elevated compared to “normal” times and will likely continue to be elevated even as freight is repriced in the first quarter.
The flatbed market has experienced some loosening of relative capacity over the past week as the Flatbed Outbound Tender Reject Index (FOTRI) is down 422 bps w/w. The flatbed market is still extremely tight, especially compared to last year, as FOTRI currently sits at 27.4%, up nearly 1,400 bps y/y.
Spot rates move higher as holiday noise still disrupted the market
The spot rate data available in SONAR from Truckstop.com is updated every Tuesday with the previous week’s data
The Truckstop.com national spot rate increased another 9 cents per mile over the past week, jumping all the way to $3.56, including fuel surcharge and other accessorials. The increase in spot rates isn’t a huge surprise as post-Thanksgiving pressures were placed on the marketplace last week. The increase is significant though as Truckstop.com’s national spot rate is now just 4 cents per mile off the all-time high set in early September. The national spot rate is still more than 15% higher than it was a year ago, signaling that carriers still hold the upper hand when it comes to pricing power. However, those comps get much more difficult in the back half of 2022.
Of the 102 lanes from Truckstop.com’s load board, 68 reported increases last week. Outbound from Los Angeles took a step higher on six of the eight lanes, with the lanes of Los Angeles to Salt Lake City and Portland, Oregon, being the only two that decreased. The capacity situation has improved in Southern California over the past week as carriers have reentered the market, so expect that some of the increases experienced over the past couple of weeks to slow in next week’s release.
Contract rates have largely plateaued over the past couple of months. This is a trend that shows how freight repricing is taking place more on a quarterly basis than the annual RFP cycle. Looking back, contract rates took a step higher in June, ahead of the third quarter getting kicked off, before plateauing throughout July and August. We’ve seen a similar trend with rates jumping in September before plateauing in October and November. Expect that we see another move higher before the end of December and into January.
Contract rates, which are the base linehaul rate excluding fuel surcharges and other accessorials that are included in spot rates, have closed the gap with spot rates significantly over the past year. Contract rates are outperforming spot rates, continuing to run 20% higher than in 2020.
FreightWaves’ Trusted Rate Assessment Consortium (TRAC) spot rate from Los Angeles to Dallas fell as expected as relative capacity loosened in Southern California. The FreightWaves TRAC rate in this dense lane fell by 6 cents per mile to $4.06. Rates are still up 4% since the beginning of the quarter.
FreightWaves’ TRAC spot rate from Atlanta to Philadelphia took a significant step higher over the past week. The FreightWaves TRAC rate increased by 13 cents per mile to $3.77 over the past week, which equals the highest the rate has been during the past three months.
Ultimately, some of the inflationary pressures on rates have alleviated themselves as capacity has returned to the market. Pressure remains on contract rates to move higher in 2022, due to the elevated rejection rates, but the move higher may not be as pronounced as it was in 2021. Either way, carriers still hold most of the pricing power in the market, though shippers are slowly clawing it back in their favor.
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