Carriers Still In Control But Momentum Slipping Slightly

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: 75 (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

The Outbound Tender Volume Index (OTVI) contracted slightly again this week, down 1.2% to 13,647. We must adjust for the level of rejected tenders accounted for in OTVI to get a clearer look at year-over-year comparisons. On a rejection-adjusted basis, volumes are up 19% y/y, a slight acceleration from last week's 18% growth rate. 

Freight volumes have been walking the x-axis since the first week of January, bouncing between 13,600 and 14,200. This is typical for January, when freight flows lull in the early weeks of the year. While this year is following a similar pattern, it is at an extraordinarily high level. If the pattern continues, we should expect to see volumes pick up speed toward the end of February. 

Consumer spending continues to impress, according to data from Bank of America. BofA estimates January monthly retail sales were up 4.6% seasonally adjusted, excluding autos. Total card spending based on aggregated credit and debit card data increased 9.7% y/y for the seven days ending Feb. 6.  Since the beginning of the year, total card spending is running at an average 5.6% y/y pace, up notably from the December average of 2.5% y/y.  

The most important development in consumer spending over the past week has been California. California has had some of the strictest COVID-related restrictions on business throughout the pandemic as the nation's most populous state battled multiple horrid outbreaks. But on Jan. 25, the state eased its COVID-related restrictions and it had an immediate impact on consumer spending. 

In the latest data, California's total card spending was up a torrid 9.5% y/y, from -1.1% y/y the week prior. The gain was driven by brick-and-mortar retail and restaurant spending, which likely reflect the easing of COVID-related restrictions in the state. 

(Chart: Bank of America)

This is great news. California's economy makes up 15% of U.S. GDP, and if California were a country, it would have the fifth-largest economy in the world, more productive than India and the United Kingdom. The California situation is a microcosm of the country as a whole. People are itching to get out of their houses and into stores and restaurants. 

Should California be viewed as a positive for pent-up demand for the entire country?

We think yes.

SONAR: OTVI.USA (2020/21 – Blue; 2020 – Green; 2019 – Orange)

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

The Outbound Tender Reject Index (OTRI) declined marginally this week from 22.4% last week to 21.2% currently. OTRI has stabilized after declining roughly 6 percentage points since the Christmas peak. OTRI has been walking along the x-axis, moving less than 2 percentage points over the past month.

Network imbalances and severe winter weather have impacted truckload capacity negatively as covering loads became increasingly difficult in the back half of last week when tender rejection rates jumped to nearly 23% as contracted truckload tenders slid.            

The current national rejection rate sits at 21.2%, a remarkably high level during a seasonally soft period for truckload freight. The current rejection rate is more than 1,600 basis points higher than year-ago levels and nearly 1,400 basis points higher than 2019 levels. The extraordinary tightness in the truckload market is resulting in truckload contract rates being negotiated in the upper single digits to low double digits.        

Securing reefer capacity is still the most difficult of the trailer types within SONAR as reefer rejections rebounded over the past week. Reefer rejections, which had been sliding for much of 2021, bounced off 40% and currently sit at 41.21%, nearly 3,000 basis points higher than last year. 

SONAR: OTRI.USA (2020/21 – Blue; 2020 – Green; 2019 – Orange)

Spot Rates: Absolute level positive for carriers, momentum positive for shippers

For the first time since Christmas, the national spot rate average posted its first weekly gain. Spot rates increased 3 cents per mile to $2.75, inclusive of fuel. This is a positive development but should come as no surprise. 

Spot rates have a high correlation to tender rejections, so we typically see spot rates move directionally similar to rejection rates at a lag. With tender rejections stabilizing at a high rate (20%-plus), there is support for spot rates and even upward pressure in many lanes.  

Spot rates currently sit 34.1% higher than at this time last year, with the gap widening this week (and breaking the recent narrowing trend) as spot rates fell last year in the comparison week. The gap peaked at as wide as about 50% last fall and then in December. 

The stabilization in spot rates came alongside a solid week in spot volumes (which rose on three of the four major lanes), a 0.8% fall in contract tenders w/w and an 18-basis-point drop in tender rejections to 21.2%. 

Our thesis on spot rates remain unchanged: We expected spot rates to fall once they reached well above $3 per mile, but we do expect spot rates to stay elevated by historical and y/y standards over the coming weeks and months as retail inventories are replenished, stimulus checks are disbursed (which is and should continue to reaccelerate consumer demand), and the industrial economy in the U.S. and globally continues to recover.

SONAR: TSTOPVRPM.USA (Blue – 2021; Orange – 2020; Green – 2019)

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.

Jobless claims fell this week compared to last week but came in above consensus expectations. Jobless claims were 793,000, which missed the consensus of 760,000, and were down from 812,000 last week. On the positive side, there was good news in the form of continuing claims (a rough proxy for unemployment), which fell this week by 145,000 to 4.5 million. Jobs numbers for January were released last week — the U.S. added 49,000 jobs and the unemployment rate fell to 6.3%.

Initial jobless claims (weekly in 2020-21)

Source: CNBC, U.S. Department of Labor

Turning to consumer spending as measured by Bank of America weekly card (both debit and credit) spending data, total card spending in the latest week available was up 9.7% year-over-year. The picture is more optimistic when focusing on retail spending excluding auto, which was up 13.6% year-over-year last week. Overall card spending accelerated materially this week from 5% year-over-year last week.

As we usually note, keep in mind there is an ongoing beneficial mix shift from cash to debit that is somewhat inflating these numbers. One can tell this is the case from the fact that debit card spending is currently running up 16% year-over-year and far outpacing credit card spending, which was up 1%. After consistently running deeply negative for months and being down precipitously in April, credit card spending does appear to have finally turned the corner.

The main takeaways this week are that spending trends have been healthy so far year-to-date (running at an average of 5.6% y/y). Bank of America sees retail sales spending up a blistering 4.6% month-over-month seasonally adjusted in January, which suggests a strong forthcoming retail sales report. Also, there was a huge acceleration in consumer spending in California last week (up 9.5% y/y vs. -1.1% the prior week) as the economy there starts to partially reopen. Lastly, spending increased in all the top 20 metropolitan statistical areas (MSAs) in the U.S., which shows the strength is quite broad-based.

By category, online electronics (up 59% year-over-year this week) and online retail (up 66%) continue to be the standout performers. However, the former two categories have slowed meaningfully from their monthslong blistering pace but have settled in at a very high level. Other strong categories include home improvement, furniture, general merchandise and — for several weeks in a row now — department stores. The strong categories, as well as the weaker ones, have been remarkably persistent since the pandemic began, with the former weakening slightly and the latter improving gradually. We would note, however, that we expect a near-complete reversal and decisive change in terms of the winning and losing categories from a year-over-year growth perspective once a large number of Americans are vaccinated, likely sometime in the second or third quarter of 2021.

In a major departure from the trend since March 2020, department store sales grew strongly last week, up 20% year-over-year. The former is likely a function of stimulus payments juicing spending on the clothing, online electronics, general merchandise and home improvement categories, according to Bank of America. Grocery was up 16% year-over-year this week, extending the winning streak we have seen in the rate of grocery spend in recent weeks and months. Interestingly, restaurant and bar spending rebounded this week and is well off the recent lows of down 22% year-over-year, finishing last week down 8% year-over-year. We expect this category to continue to improve as the weather warms and COVID case counts fall. Finally, airlines, lodging, transit and entertainment continue to be the worst-performing categories by far, but all three categories are way up off the bottom. Airlines and entertainment are now declining about 65% year-over-year compared to the trough of down 90%-100% in early April.

Card spending by American consumers has a strong correlation with truckload volumes, so we will continue to monitor this data closely going forward.

Source: Bank of America Securities

Transportation stock indices: Absolute levels and momentum positive for carriers

This past week was another great week for our transportation indexes (the second in a row). There were numerous strong earnings reports this week. LTL was the best performer at 5.5%, while truckload and logistics tied for the worst performers but were still up 3.3%.

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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