Volumes Jump For The First Time In 2020, But Shippers Maintain Pricing Power

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

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

Three-month DHL Supply Chain Pricing Power Index Outlook: 55 (Carriers)

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.

The coronavirus has made its first impact upon the American economy – the stock market. The novel virus is also impacting import volumes from China and the effect will quickly trickle into the trucking market. It has not yet, but will soon. This week, spot rates bounced back slightly with a bump in outbound volumes. Capacity remains very loose. 

The Pricing Power Index is based on the following indicators:

Load Volumes: Momentum And Trend Neutral

The national outbound tender volume index rose just over 2.5% over the past week. It may not seem like much, but this is the largest weekly gain thus far in 2020. For this reason, I am celebrating. For the past seven weeks, I have written flat volumes and it has become tiresome doing so. OTVI now sits at 9,878.30, well below the March 2018 starting point of 10,000. 

If OTVI is to mimic the past two years, it should exhibit another low single-digit gain over the next week. In each of the past two years, March volumes have been considerably stronger than the first two months of the year. Although the coronavirus certainly threatens this trend, it is still likely to continue. 

Reefer volumes bounced up 7% off the bottom on February 7th. While reefer volumes have trended down over the past few weeks, ROTVI still stands 6% over 2019. 

Less wintery weather across the Midwest and Northeast has eliminated the demand for reefer trailers for some products. Our outlook for volumes for the remainder of the first quarter is blurred by the effects of the coronavirus on global trade flows. Until we have more visibility from people outside Beijing, it is difficult to properly determine what the impact will be on U.S. truckload volumes in the short-term. 

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

Tender Rejections: Absolute Levels And Momentum Positive For Shippers

Tender rejections fell more than 6% this week, primarily pulled downwards by slipping reefer rejections. National outbound tender ejections now sit below the 2019 average at 5.4%. This week marks a reversal of upward momentum over the past two weeks. After peaking at 14.25% on Christmas Day, the Outbound Tender Reject Index (OTRI) has tumbled into dominant pricing power positioning for the shippers. Capacity is still extremely loose and it will most likely stay this way for the next few weeks. The coronavirus has not yet impacted American truckload capacity, but it is likely to do so in the near future. 

SONAR: ROTRI.USA (White – 2020; Orange – 2019)

Spot Rates: Absolute Level Positive For Shippers, Momentum Neutral

Spot rates may have bottomed last week. According to DATVF.VNU, spot rates increased 4% since our reporting last week. Currently, spot rates sit at $1.38 per mile, which is infringing on operational costs per mile. Meaning, it is not likely that spot rates will fall any further. That being said, spot rates may hover in this $1.35 – $1.40 range for some time. For much of 2019, spot rates remained around $1.40. This is the first week spot rates have increased since the Christmas peak at $1.62 per mile. We believe once the freight impacts from the coronavirus have been worked through, spot rates are in a position to move up significantly when that freight hits U.S. coasts. But, with the amount of sailings currently being cancelled or running mostly empty, it could be months before imports from China normalize. 

SONAR: DATVF.VNU

Economic Stats: Momentum And Absolute Level Neutral

Consumer confidence came in at 130.7 in February according to The Conference Board, missing the consensus expectation of 132.6. This was up from 130.4 in January and is still a strong reading. However, the present situation index – an indication of consumers' assessment of the current business and labor environment – fell to 165.9 from 173.9 in January and dragged down the overall reading. Finally, on the positive side, the expectations index – which is forward looking and is based on consumers' short-term outlook for income, business and labor market conditions – increased from 101.4 in January to 107.8 in February.

All in all, February's Conference Board consumer confidence report was slightly disappointing relative to expectations but still posted a healthy reading that, when combined with improving expectations, should be enough to support a continued solid backdrop for the American consumer. The wild card that could change these dynamics at any moment is if the coronavirus becomes a pandemic in the U.S. A strong consumer has been a critical component behind dry van volume (VOTVIY.USA) and reefer volume growth (ROTVIY.USA) remaining near flat but still positive in recent weeks.

SONAR Tickers: VOTVIY.USA, ROTVIY.USA

On the monetary front, futures markets on the Chicago Mercantile Exchange (CME) are now predicting close to 90% odds of three rate cuts by the end of 2020 as the coronavirus spreads and economists and investment banks cut their forecast for global growth.

Transportation Stock Indices: Absolute Levels Positive For Shippers, Momentum Positive For Carriers

This week was a bloodbath for our transportation indexes as the stock market plunged on fears that the coronavirus will become a global pandemic. Our parcel index led the way on the downside with a 14.4% decline, closely followed by our truckload index down 13.5% and our logistics index down 12.1%. LTL was the best performer the past week but still fell 10.3%

There was little fundamental news in the way of earnings this week as the majority of transportation companies already reported their first quarter numbers. We believe the market is discounting the likelihood that both volumes and rates will be negatively impacted as supply chains from Asia shut down (or operate at less than capacity) and the resulting drag on economic growth.

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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