Tender volumes tick back up this week
The Outbound Tender Volume Index (OTVI) rose again this week by 2% and has improved as tender volumes have accelerated into the weekend. As we have noted in previous weeks, we must account for the extremely high level of rejected tenders in OTVI by calculating the accepted tender volume index.
To remedy the distortion, we can use this simple formula to calculate the level of accepted tenders: OTVI * (1-OTRI) for any given day.
15,414 * (1 – .25) = 11,499 accepted tender volume index value for Sept. 23, 2020
10,392 * (1 – .053) = 9,929 accepted tender volume index value for Sept. 23, 2019
Using this metric to control for the high level of rejected tenders allows us to get a more accurate understanding of the true demand level. Tender volumes and overall freight demand remain at historically high levels and the Passport Research team feels this is more likely to be a seasonal breather or a cooling-off period between waves of imports and inventory restocking. In its most recent weekly trucking update, “The flattening,” the team referenced the carrier-facing headcount expansion at brokerages and the wage inflation at carriers as evidence this rally has legs.
Accepted freight tender volumes are running up 16% year-over-year on a tender rejection adjusted basis. This is down from 19% on a tender rejection adjusted basis last week. October should give us a strong indication of demand through the end of year. Our expectations have not changed in recent weeks and we still believe the rest of the year is bright for the freight market. Retail inventories are down 12% year-over-year, while sales are up 11%. The possibility of another round of stimulus before (or shortly after) the election would aid this argument. Consumer spending has remained strong given the economic backdrop and overall card spending was up 1% year-over-year this week, according to Bank of America data. Import data and future twenty-foot equivalent unit (TEU) bookings are also supportive of the forward outlook for freight. These factors lead us to believe that freight volumes could end 2020 on a strong note.
On a positive note, nine of the 15 major freight markets that we monitor as a broad, representative benchmark were positive on a week-over-week basis. This ratio did deteriorate slightly from stronger levels in recent weeks but has been consistently high for months as the freight market rallies. The markets with the largest gains this week in OTVI.USA were Indianapolis (18.58%), Houston (8.32%) and Fresno, California (5.76%). The markets with the largest declines this week in OTVI.USA were Laredo, Texas (-11.24%), Miami (-9.60%) and Savannah, Georgia (-5.38%).
Tender rejections remain elevated
After briefly falling below 25% last week, the Outbound Tender Reject Index (OTRI) has accelerated into the weekend and sits at 25.68%. Historically the upper bound of OTRI is roughly 25%. We very rarely see OTRI reach these levels, and when it does, it does not stay above 25% for long. In fact, the longest period above 25% came in the spring of 2018 (a very hectic freight environment) with a duration of roughly three weeks. This most recent journey above 25% is the second longest of any in the index’s three-year history.
While OTRI has fallen 5% off of the recent peak, it remains at a remarkably high level at 25.68%. This indicates that more than one in four loads is still being rejected at contracted rates across the country. Rejection rates in three of the six largest freight markets are outpacing the national average. Although rejection rates have slowed since Labor Day, carriers are still rejecting more than enough contracted freight to keep spot rates high.
Demand is simply outstripping capacity right now and nothing points to that changing anytime soon. Accepted tenders remain at a historically high level and carriers are being selective and exercising their options in searching for the highest rates and best loads.