Carriers In Strongest Power Position Of Past 2 Months

This week's DHL Supply Chain Pricing Power Index: 20 (Shippers)

Last week's DHL Supply Chain Pricing Power Index: 15 (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 are benefiting greatly from the reopening of the economy and a release of pent-up consumer demand. Supply dynamics are taking longer to adjust and capacity remains extremely loose. While rates are coming off a depressed base, spot rates have increased in the vast majority of lanes. Consumer spending data and a bump from produce season put the carriers in a better position than they have been in throughout the past month.

The Pricing Power Index is based on the following indicators:

Load volumes: Absolute levels and momentum positive for carriers

Outbound tender volumes continued a roller-coaster ride to the upside this week. Volumes have blown past any of the Freight Intel Group's expectations and have moved me to question the validity and origin of the volume growth. Overall volumes are surging as import volumes are plummeting. Indeed, there is typically a week lag before imports get tendered and included in our OTVI. The surge in imports at the end of April is playing a part in the volume surge. California is home to two of the largest ports in the country but is also the largest agricultural-producing state.

SONAR: OTVI.CA (White); ROTVI.CA (Green)

Both total and reefer volumes out of California have surged over 30% in the past month. OTVI.CA is now at precrisis surge levels, which is remarkable. The volume surge that has occurred on a national level is far too much to have come from just one market.

A couple weeks back, the automotive industry seemed to be a promising source of volumes when its factories came back online. The Michigan (OTVI.MI) and Ohio (OTVI.OH) outbound tender volumes have not risen as rapidly as the national average. However, inbound volumes to both Ohio and Michigan have been rising rapidly. This may translate into much-needed outbound volumes from the two states. 

This time of the year, we should expect to see a produce bump, but total volumes are rising faster than reefer currently. That said, traditional produce markets in the Southwest have exhibited the largest monthly changes in volumes (Tucson, Phoenix). The scorching hot consumer spending data that will be detailed later is also playing a role in this surge. The reopening of most of the country is unleashing the pent-up demand from house-bound Americans. How long it can last remains to be seen.

SONAR: OTVI.USA (Blue); ROTVI.USA (Orange)

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

Outbound tender rejections have increased week-over-week for the third week in a row after tumbling for the six weeks since the OTRI peak of 19.25% on March 28. It seems the trough is now behind us, but at 3.81%, OTRI is still in a historically low range.

Rejection rates vary by trailer type. Currently, reefer rejections are more than double van and four times higher than flatbed. However, reefer rejections have gone horizontal this week. Van rejections have pushed OTRI.USA higher this week. But make no mistake, capacity remains extremely loose and carriers are still accepting almost everything they can get.

There are pockets of tightening capacity, mostly on the West Coast and in the New England area. Now that volumes have begun to return, OTRI is likely to rise modestly in the coming weeks as carriers regain confidence that they may have options besides their contracted freight. However, this will likely be several months, if not quarters, away. Carriers are still accepting nearly every contracted load they can get their hands on to keep utilization high and keep trucks rolling. Capacity will not tighten until freight volumes are restored in most markets around the country, and that has not happened yet. 

Notwithstanding many drivers idling their trucks and removing capacity from the market, capacity remains extremely loose due to low volume throughput. 

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

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

For the second time in as many weeks, spor rates have climbed for the majority of the 100 lanes of Truckstop.com spot rate data available in SONAR. Spot rates have bottomed across the nation. Of the 100 lanes, 13 are up double digits since last week, with only five down double digits. 

Just four weeks ago, 97% of lanes in SONAR were negative. Spot rates are undoubtedly still well below what we would expect without a pandemic, but we have found the bottom and are being aided by the volume surge. 

For the first time in many weeks, spot market volumes are positive week-over-week in the majority of Truckstop.com lanes. 

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 second week of May were 2.4 million; this comes on the heels of 3 million initial jobless claims last week. This brings the nine-week total to 38.6 million Americans applying for unemployment benefits, which far more than wipes out all the job gains since 2009. Continuing claims, a good measure of the persistence of unemployment, clocked in at 25.1 million, an increase of 2.5 million from the prior week despite many states beginning to reopen for business.

To put into context just how high that number is, nearly 2% of the American workforce have lost their jobs in each of the past four weeks, and 3%-4% of Americans lost their jobs in each of the six weeks prior to that. Just in the past eight weeks, more than 22% of Americans have lost their jobs. Although initial jobless claims are trending downward, the 2.4 million initial claims are nearly four times the previous 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, initial jobless claims fell for the seventh 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 27%, more than seven times the 50-year low of 3.5% from about eight 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 16, several things stand out. The good news is that consumer spending appears to have convincingly bottomed and stabilized, albeit at a moderately low level. 

Overall credit card spending was down an average of 12% for the trailing five days, a slight deceleration compared to -10% last week but still a major improvement from the trough of -36% during the last five days of March (and -18% two weeks ago). Amazingly, retail sales ex-autos are actually running flat year-over-year for the trailing five days, (down from 1% last week), driven by strength in the low-end consumer. If we are honest, we would never have imagined that consumer spending ex-autos would be up year-over-year in the midst of the worst recession since the Great Depression. 

One important factor to note is that there has been a meaningful mix shift to debit cards from cash (due to the unsanitary nature of cash), so total retail card spending has been outpacing retail spending overall. It remains to be seen how sustainable this boost in consumer spending is that has been aided by stimulus checks, unemployment insurance and the reopening of most states, but it is certainly good news for now. Every category has distinctly bottomed, though airlines, lodging and entertainment continue to show 80%-100% declines in revenue. Restaurant spending is now down only about 35% over the past week, well off the lows of down 65%-75%. Online electronics and e-commerce continue to exhibit scorching growth of 126% and 85%, respectively, on average for the past week. The former trends were evidenced by Best Buy's strong online electronics growth in its earning report, and Target and Walmart's e-commerce divisions grew 141% and 74%, respectively, in their most recently reported quarters. Grocery and home improvement remain strong, as they have been for weeks now; the latter trend was borne out by Lowe's earnings report this week where same-store sales grew 11% (and north of 20% in April).

The fabulous news is that outside of airlines, lodging and entertainment, every category has bottomed and is experiencing a strong recovery. Lodging is perhaps starting to enter the first inning of a very long recovery. We had previously expected card spending to stall at the mid-teens decline rates of the past two weeks, given 27% unemployment. There is a long way to go in many categories, however. 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 fantastic week for our transportation indexes. Logistics was the best performer at 9.8% but all modes were hugely positive and not far behind.

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.