Huge rebound in tender volumes as negative weather impact fades
The story this week was the huge rebound in tender volumes against a very depressed weather-influenced comparison from a snowstorm blanketing most of the U.S. In Texas, winter blizzards rampaged last week, leaving millions without power and creating major disruptions to economic activity. The Outbound Tender Volume Index for the states of Texas and Oklahoma both sank roughly 25% last week as residents and businesses shuttered.
However, this week volumes have snapped back greatly to well above pre-storm levels. Both Texas and Oklahoma have seen outbound volumes surge 60% off the bottom, with Texas volumes ~20% above pre-blizzard levels and Oklahoma up ~30%.
On a smaller scale, the same volume movement has played out on a national level. OTVI.USA fell ~6% last week as snow and ice blasted all but six states, but volumes roared back more than 20%this week off the bottom. Some of this can be attributed to normal seasonality — freight volumes have risen in the last week of February/first week of March each of the past three years.
The storm may have frozen freight markets, but this was a fleeting event and appears to have caused no change to the underlying fundamentals. There is no obvious end for this freight bull market in sight. Consumers continue to spend heavily on goods, which drives freight and depletes already diminished inventories. Even if consumer spending diverged from its current upward trajectory (which most see as unlikely given the additional stimulus, accelerating vaccine rollout and strong consumer balance sheets), the heavy inventory restocking ahead might be sufficient to keep freight flowing at elevated levels.
In addition to consumer goods demand, the housing market is white hot and there’s a blooming recovery in the industrial economy underway. The housing market bears careful watching as interest rates are starting to aggressively move up in the U.S. All of these bullish variables, along with the extended pent-up demand of catching up from the winter storms, are converging just as the spring freight season kicks off.
On a positive note, all 15 major freight markets that we monitor as a broad, representative benchmark were positive on a week-over-week basis. This ratio strengthened dramatically back to the stronger levels it has become accustomed to in recent months as the freight market rallies. This was expected as markets recovered from a nationwide snowstorm. The markets with the largest gains this week in OTVI.USA were Memphis, Tennessee (70.66%), Dallas (66.71%) and Houston (64.90%).
Tender rejections hover near peak
A week after winter weather ravaged a majority of the country, networks are still under immense pressure as tender rejection rates are near all-time highs. The Outbound Tender Reject Index (OTRI), a measure of relative capacity, rose modestly by 33 basis points this week to 26.62%, just shy of the all-time high. The 33-bps rise in rejection rates came on the heels of the largest single-week jump in rejection rates last week since the initial surge at the onset of the COVID-19 pandemic in the United States at the end of March 2020.
Given the elevated rejection rates and tight capacity to begin the year, in what is traditionally seasonally the softest time for truckload freight, any catalyst to keep drivers off the road can be amplified. Over the past week, reefer rejections increased by 178 bps and currently sit at 47.3%, over 3,500 bps higher than year-ago levels. As the produce season is set to take off in the upcoming months, the pressure to secure reefer capacity that is already being felt could become more problematic as networks work to catch up.
The aggregate index has cooled off slightly and seems to be leveling out above 25%, indicating carriers are rejecting approximately one in four contracted tenders across the country. In the Midwest and Plains regions in particular, capacity is extremely difficult to source and rejection rates are above 40% in most markets. Routing guides in the hardest-hit regions like Texas have recovered slightly and rejections are trending down, but volumes currently are above pre-storm levels.
The storms last week and the resulting pent-up demand, together with a host of other bullish catalysts forthcoming, could lead to an extended environment of tight capacity and elevated rates and volumes.