Freight Volumes Have Not Found The Bottom Yet

This week's DHL Supply Chain Pricing Power Index: 25 (Shippers)

Last week's DHL Supply Chain Pricing Power Index: 45 (Shippers)

Three-month DHL Supply Chain Pricing Power Index Outlook: 50 (Balanced)

The DHL Supply Chain 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.

National contract freight volumes are now at Labor Day 2019 levels, while spot market volumes are even lower – near Christmas Day levels. Due to the lack of freight moving, tender rejections rates have plummeted towards a rare 4% mark. Spot rates are down in 97 of the 100 Truckstop.com lanes in SONAR. Horrid economic data has become the status quo – another 5 million Americans applied for unemployment benefits last week, and the Empire State Manufacturing Index fell to a record low -78.2. 

The Pricing Power Index is based on the following indicators:

Load volumes: Absolute levels and momentum neutral

National outbound freight volumes have continued tumbling for the third straight week. Since the peak on March 23rd, the outbound tender volume index (OTVI) has shaved off 35%. After seeing the pace of decline slow earlier this week, some began to call for a volume trough. The decline accelerated again yesterday, and now on a weekly basis volumes are down 10.66%. 

OTVI was elevated for 44 days when it surged and retreated roughly 25%. In the eight days since reversing all of the freight frenzy, OTVI has fallen another 13%. Unlike some of my colleagues, I believe volumes will continue to fall for some time. 

SONAR: OTVI.USA 

The facts of the environment are more than half of all small businesses are still completely shut down, 94% of Americans are still under shelter-in-place orders and consumers are not spending money. Retail sales data from the U.S. Department of Commerce came in down 8.7% for March – the largest one-month drop in history. This number under-represents the actual decline in consumer spending due to its lagging nature. Credit and debit card data from JP Morgan suggests consumers are spending much less than 8.7% below this time last year. 

Source: JP Morgan

Small businesses move a significant amount of freight in the U.S. and until these firms are fully operational again, volumes will stay depressed. As to when these businesses will get back online is all dependent on how quickly COVID-19 is contained and consumer confidence is reignited.

SONAR: OTVI.USA

Tender rejections: Absolute levels and momentum positive for shippers

Outbound tender rejections have now fallen to the lowest point in 2020, to 4.19%. Since peaking at 19.25% on March 28th, OTRI has plummeted more than 75%. OTRI is a measure of carriers' willingness to accept loads at contracted rates and currently, carriers are moving whatever freight they can find. Contract volumes are at Labor Day 2019 levels, and spot rate volumes from Truckstop.com are in the Christmas Day  range for most major lanes. 

In the three-year history of OTRI, 4.19% is one of its lowest readings. The last time OTRI neared the 4% mark was August 2019, a time categorized by overcapacity. In terms of pricing power, it is not constructive to either shippers nor carriers when volumes are this low. So, to grasp where the power is in this underperforming environment, we must look to pre-crisis capacity, which was already excessive. Although we believe bankruptcies and company failures will reaccelerate in Q2, capacity is still very loose right now. Until volumes pick back up, or a swath of drivers leave the market, that environment will remain.

SONAR: OTRI.USA

Spot rates: Absolute levels and momentum positive for shippers

Spot rates have quickly adjusted to the plummeting freight volumes. Of the 100 lanes Truckstop.com provides spot rate data for in SONAR, only 3 are positive. That means spot rates have declined week-over-week for 97% of lanes in the U.S. 

We believe spot rates will quickly encroach upon operational costs per mile during April. There will be expectations for grocery, consumer staples and medical supplies, but overall rates will be down considerably on a yearly and sequential basis in April. As FreightWaves CEO, Craig Fuller, noted yesterday in a SONAR Freight Market Pulse, "Spot market activity won't return until after the contract market does, so monitoring tender activity gives us a sense of market direction." And with tender volumes and rejections pointing downward, it will be some time before the contract market returns to normal. 

SONAR: TSTOPVR

Economic stats: Momentum and absolute level neutral

Backward-looking economic data is relatively useless at this point. Nonetheless, several economic data releases this past week are worth examining.

By far the most widely watched blockbuster economic data point this week was initial jobless claims, which came out today. Given its frequency, this is one of the best real-time indicators we have.

We just received the jobless claims for the second week of April and they were 5.2 million; this comes on the heels of 6.6 million initial jobless claims last week and 6.9 million the week before last. This brings the 4-week total to roughly 22 million Americans applying for unemployment benefits. 

To put into context just how high that number is, 3% of the American workforce lost their jobs in a single week, after more than 4% had lost their jobs in each of the previous two weeks. Just in the past four weeks, more than 13% of Americans have lost their jobs. Although initial jobless claims are trending downward, the 5.2 million initial claims are more than 7  times the peak of 665,000 in the 2008-09 recession and the all-time record of 695,000 in October 1982. If there is any good news at all, initial jobless claims fell for the second straight week, indicating initial claims have peaked. That being said, it wouldn't surprise many for next week's number to add another 3 to 5 million to the total. The unofficial unemployment rate now sits at near 17%, nearly five times the 50-year low of 3.5% from just a month ago. The chart of initial claims going back to the 1960s is stunning and an anomaly unlike any that has been seen.

U.S. Initial jobless claims (1960s – present)

Source: CNBC, Department of Labor

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

Last week, each of our four transportation indices posted double-digit gains. This week, the entire stock market has been cooler, while still clawing back some of the value shed in March. Two indices – truckload and parcel – posted measly gains of 0.5% and 0.1% respectively. Logistics gave back some value after last week's roaring gains with XPO and ECHO leading the downside. Despite YRCW surging nearly 30% this week, the LTL index fell 3.5%. 

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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