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:
Volumes sliding ahead of the Christmas holiday
The Outbound Tender Volume Index (OTVI) took a significant step lower over the past week, falling by 2.26% week-over-week (w/w). Tender volumes have been sliding since the Thanksgiving holiday, but Thursday’s decline of over 1% was the largest single-day decline, outside of holiday-affected days, since Nov. 3.
Up until now, tender volumes had been following a 2019 trend, moving lower but not near at the pace that occurred in 2020. Thursday’s decline changed that, causing the trend to actually be closer to 2020 than 2019. The gap with 2020 levels has significantly narrowed over the past week. Tender volumes before Thanksgiving were running down over 8% y/y and are now down just a tenth of a percent.
OTVI, which is shippers’ requests for capacity, includes both accepted and rejected tenders, so adjusting for the Outbound Tender Reject Index (OTRI) paints a full picture of the level of freight moving through the country. Accepted tender volumes have been outperforming 2020 levels throughout most of the year, thanks to OTVI being higher and OTRI falling as contract rates have been repriced higher. Accepted volumes are currently up over 6% y/y but fell by 3% w/w due to the drop in OTVI and rebound in OTRI.
Volume levels continue to move in a downward trend around the vast majority of the country. Of the 135 freight markets tracked by FreightWaves SONAR, just 53 reported weekly increases.
Large interior markets like Dallas and Indianapolis experienced upticks in tender volumes despite the vast majority of the markets being lower. In Dallas, tender volumes rose by 2.3% w/w while in Indianapolis volumes rose by 4.1% w/w, the largest increase of any of the 20 largest freight markets in the country.
By mode: Reefer volumes have actually held up relatively speaking over the past week. The Reefer Outbound Tender Volume Index (ROTVI) fell by 0.37% w/w. ROTVI was performing even better before a 1.85% drop on Thursday. Overall, the outlook for reefer volumes as the winter months is quite strong, though comps are quite difficult.
Dry van volumes suffered a deeper decline over the last week compared to the reefer market. The Van Outbound Tender Volume Index (VOTVI) fell by 3.12% w/w, the largest weekly decline since early October. Thursday’s decline wasn’t as pronounced as it was in the reefer market, falling by 1.73%.
Here come rejection rates
The holiday uptick in rejection rates begins. Dec. 15 seems to be the traditional date when rejection rates start to climb into the Christmas and New Year’s holidays, and 2021 is no different. The Outbound Tender Reject Index (OTRI) has risen back to 20%, a level it spent over a year above until early November.
Over the past week, the national rejection rate increased by 64 basis points to 20%, the largest w/w increase in a month. The holidays place upward pressure on rejection rates as drivers come off the road, so expect capacity to tighten further in the next two weeks.
Even with the uptick, OTRI will likely not reach the same levels of 2020, considering OTRI is still 675 bps below year-ago levels.
The trouble is that capacity entering the market hasn’t been able to keep up with freight demand, thus higher rates haven’t driven rejection rates back down to more “normal” levels. Add in various other constraints in the transportation market and it leads to extremely tight capacity persisting for the better part of 18 months.
Why has there not been a surge in capacity flooding the market?
The barriers to entry are arguably higher than they have been, especially for smaller carriers to add to their fleets through the used equipment market. Used truck prices have surged over the past year as OEMs have struggled to produce new equipment amid record new truck orders. Why is this important? Large carriers are holding onto equipment longer, thus starving the used equipment market of supply while also being hit on the elevated demand side. This causes an upward spiral in used equipment prices.
As expected when the overall rejection rate moves higher, the majority of the freight markets experience an uptick as well. Of the 135 markets, 88 experienced rejection rates move higher this 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.
In Nashville, Tennessee, rejection rates fall back to earth. Over the past week, rejection rates in Nashville have fallen by 516 bps, the third-largest decrease in the country. Rejections in the Nashville market are still 250 bps higher than they were two weeks ago, but the decline signals a slowdown in spot market activity.
Capacity in Elizabeth, New Jersey, continues to tighten as rejection rates have increased by 168 bps over the past week. This tightening will likely continue as load imbalance has accelerated, with the Headhaul Index (HAUL) increasing by 7% w/w.
By mode: The reefer market has continued its tightening trend as expected. The Reefer Outbound Tender Reject Index (ROTRI) increased by 129 bps w/w to 37.25%. ROTRI is still over 600 bps below year-ago levels and unlikely to set new highs, but the uptick signals securing capacity in the market is still quite difficult.
The dry van market experienced the second-largest increase w/w since early September, with the largest increase being before Thanksgiving. Expect that will continue and the tightening over the next couple of days will lead to the largest w/w increase in van rejections since earlier summer. The Van Outbound Tender Reject Index increased by 83 bps this week to 19.27%.
The flatbed market is in the midst of another volatile period. The Flatbed Outbound Tender Reject Index (FOTRI) increased by 90 bps to 28.26%. The flatbed market is still much tighter than a year ago as rejections are 1,170 bps higher y/y. That is likely to continue into the first quarter of 2022.
Spot rates give back all of last week’s increases
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, based on the top 100 lanes on Truckstop.com’s load board, took a breather after two consecutive weeks of increasing. The national spot rate fell by 9 cents per mile to $3.47, including fuel surcharge and other accessorials, erasing all of the previous week’s increase. Even with the pullback, Truckstop.com’s national spot rate is nearly 20% y/y.
Of the 102 lanes from Truckstop.com’s load board, 75 reported decreases last week. Inbound Los Angeles took a step lower last week, with the southbound lane, Portland, Oregon, to Los Angeles falling by 52 cents per mile, to $2.07, the largest decrease in the dataset. The pullback in rates as drivers returned to the road post-Thanksgiving was expected, especially as carriers try to take advantage of the elevated outbound LA rates.
Contract rates took a slight step up, rising 3 cents per mile to $2.73. Since contract rates are reported on a two-week lag, current contract rates are feeling the effects of Thanksgiving, which placed upward pressure on them. Expect that there will be some upward pressure on rates leading into the first quarter of 2022, likely testing the all-time high of $2.77/mi.
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 nearly 18% higher than in 2020.
FreightWaves’ Trusted Rate Assessment Consortium (TRAC) spot rate from Los Angeles to Dallas fell over the past week. The FreightWaves TRAC rate in this dense lane fell by 5 cents per mile to $4.02. Expect some upward pressure throughout next week as volume imbalances will likely tighten capacity in Southern California in the coming days.
FreightWaves’ TRAC spot rate from Atlanta to Philadelphia gave back all of last week’s increase. The FreightWaves TRAC rate decreased by 11 cents per mile to $3.68 over the past week.
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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