Volume Faucet On Full Blast But Rates Still A Dribble

This week's DHL Supply Chain Pricing Power Index: 30 (Shippers)

Last week's DHL Supply Chain Pricing Power Index: 25 (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.

Outbound tender volumes posted the highest June 4th total in the three-year series history. Volumes have made a near-miraculous climb over the past few weeks and there isn't much to point towards a slow down. Capacity is reacting very slowly to the volume surge, but OTRI has finally broken the 5% threshold. Spot markets have come alive in the past couple weeks, but rates remain significantly below where carriers would expect them to be in normal times. 

The Pricing Power Index is based on the following indicators:

Load volumes: Absolute levels and momentum positive for carriers

The outbound tender volume index has roared out from the Memorial Day disruption and now sits at 11,008.21. This is the highest June 4 value in the three-year series history. Due to the holiday, weekly comparisons are skewed but OTVI is up 5.6% year-over-year. 

The agricultural hubs along the West Coast and in the Southwest and Southeast continue to be strong sources of volumes. In May, the Rust Belt also became a source of outbound freight as much of the country's manufacturing and industrial economy came back online.  

Many economists and analysts are beginning to call the bottom of the COVID recession. I will not be ready to make that call for another few weeks. The government has been able to keep the economy afloat through this economic downturn. The additional unemployment benefits and stimulus checks allowed people to pay their bills and feed their families, but those are set to run out in July. Consumers kept the bull run chugging for nearly 12 years, and consumers will be the ones who pull us out of this as well. The savings rate spiked in April to 33% as a result of increased income from government transfer and a reduction in spending (15%+). To experience the "V-shaped" recovery that many hope for, consumers must spend. 

SONAR: OTVI.USA (2020 – Blue; 2019 – Green; 2018 – Orange)

Tender rejections: Absolute levels positive for shippers, momentum positive for carriers

Outbound tender rejections have increased week-over-week for the fifth week in a row after tumbling for the six weeks since the OTRI peak of 19.25% on March 28. Capacity has tightened as volumes began to fill markets throughout May. Overall reefer rejections are up nearly 10% week-over-week. It's not much, but just four weeks removed from the lowest print in series history, any movement toward the upside should be cheered by carriers.

The produce season helped push reefer rejection rates up, especially in and around California and Florida. After stalling two weeks ago, reefer rejections have begun rising quicker than total rejections in the past two weeks. 

Although there are pockets of tightening capacity in the Southeast, on the West Coast and Northern Plains, capacity remains relatively loose across the country. If volume throughput remains near this level, rejections will adjust upward in the coming weeks. We expect capacity to tighten throughout June. 

SONAR: OTRI.USA (White); ROTRI.USA (Green)

Spot rates: Absolute levels positive for shippers, momentum positive for carriers

Spot rates continued to climb off the bottom this week for the fourth week in a row. Rates remain below 2019 levels for the vast majority of markets but have surged significantly since the late-April bottom. Rates are responding to rising rejections and spot market volumes — more than 80% of the Truckstop.com lanes are showing positive growth in dry van volumes. 

Almost all (83%) of the Truckstop.com spot rate lanes are positive week-over-week. One-quarter of the markets are up by at least 10%. 

SONAR: TSTOPVV

Although rates are moving upward, they are coming off a very depressed base. Spot rates plunged when the country went into lockdown and it will be some time before spot rates and volumes fully recover. That said, it is positive news for carriers that spot markets are beginning to rekindle. 

SONAR: TSTOPVR

Economic stats: Momentum and absolute level neutral

Several significant economic releases this week are worth noting.

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

Jobless claims for the last week of May were 1.9 million; this comes on the heels of 2.1 million initial jobless claims last week. This brings the 11-week total to 42.6 million Americans applying for unemployment benefits, which more than wipes out all the job gains since 2009. Continuing claims, a good measure of the persistence of unemployment, clocked in at 21.5 million, an increase of 649,000 from the prior week, which is a bad sign because it broke a multiweek streak of falling continuing claims, which suggested some people were being rehired as states opened back up.

This week marked the first week since early March that initial claims were less than 2 million. In the past 11 weeks, 26% of Americans have lost their jobs. Although initial jobless claims are trending downward, the 1.9 million initial claims are still almost three times the previous peak of 665,000 in the 2008-09 recession and the all-time record of 695,000 in October 1982. The other good news, in addition to the trend of falling continuing claims, is that initial jobless claims fell for the ninth straight week and marked the lowest weekly total since the coronavirus outbreak in March, indicating initial claims have peaked. The unofficial unemployment rate now sits close to 25%, more than seven times the 50-year low of 3.5% from about 11 weeks ago.

U.S. initial jobless claims (2007-present)

Source: CNBC, U.S. Department of Labor

Taking a deeper look at more granular credit card data from Bank of America Merrill Lynch for the week ending May 29, several things stand out. The good news is that consumer spending appears to have convincingly bottomed and stabilized, albeit at a moderately low level. We would note that there is a positive benefit to this data because there is an ongoing aggressive mix shift from cash to debit card spending due to the health risks of cash. Debit card spending is faring much better than credit card spending (up 3% year-over-year compared to down 23%).

Overall card spending (both debit and credit) was down an average of 9% for the trailing seven days, in line with the past two weeks and still a major improvement from the trough of -40% during the last five days of March (and -18% four weeks ago). 

Spending by low-income consumers was actually up 3% year-over-year, and spending in the states that are furthest along in the recovery is flat with last year. States that are reopening are seeing distinctly improving trends (down mid to high single-digit range). Amazingly, retail sales ex-autos are running up 1% year-over-year for the trailing seven days, (a modest improvement from last week), driven by strength in the low-end consumer. Again, if we are honest, we would never have imagined that consumer spending ex-autos would be flat year-over-year in the midst of the worst recession since the Great Depression.

It remains to be seen how sustainable this boost in consumer spending is. It has been aided by stimulus checks, generous unemployment insurance and the reopening of most states, but it is certainly good news for now. This could be an issue if unemployment benefits expire after July without renewal or extension.

Every category has distinctly bottomed, though airlines, lodging and entertainment continue to show 60%-100% declines in revenue. Lodging is clearly improving, now running down close to 66% from 90%-100% earlier. Restaurant spending is now down only about 31% over the past week, well off the lows of down 65%-75%. Online electronics and e-commerce continue to exhibit scorching growth of 129% and 86%, respectively, on average for the past week. Grocery has flattened out as restaurant spending returns. Clothing spending is ramping nicely and home improvement remains strong, as it has been for weeks now. Lastly, brick-and-mortar retail spending is showing signs of bottoming and picking up as states reopen.

The fabulous news is that outside of airlines and entertainment, every category is experiencing a strong recovery. And every category has bottomed, with airlines only seeing an 89% decline in spending this week, which sounds crazy but is up from down 100% or more (refunds) a few weeks ago. Consumer spending will be important to watch to gauge when the economy and freight volumes will pick up; the card data indicates momentum in terms of improving volumes off of the bottom should continue. The momentum in card spending closely matches the improvement in OTVI since the bottom in mid-April.

Source: Bank of America Merrill Lynch 

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

It was a mixed week for our transportation indices following several strong weeks in a row. Parcel was the best performer at 5.0% and LTL was the worst performer at down 1.8%.

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.
Check out the newest episodes of our podcast "Great Quarter, Guys" here.