Outbound tender volumes continue to fall

Jhon Thor

The Outbound Tender Volume Index (OTVI) fell 3.4% week-over-week (w/w). This is a meaningful decline, but shouldn’t be seen as a trend. Tender volumes are following the seasonal lull, but at a much higher level. Due to the high level of tender rejections, it is important to adjust OTVI to account for this. On a rejection-adjusted basis, tender volumes are up 23% year-over-year (y/y), up from 20% last week. 

The pace of consumer spending slowed last week according to Bank of America card spending data, but remained quite strong. After posting a post-pandemic best 9.7% y/y growth rate last week, consumers reigned in spending and notched a 6% y/y growth rate in the latest week of data (ending Jan. 16). 

The stimulus checks have created massive disparities in spending between stimulus recipients and non-recipients. Total card spending for stimulus recipients ran at 12.7% y/y for the seven days ending Jan. 16 compared to a 2.8% y/y pace for non-recipients. Expanded unemployment insurance (UI) is also making a difference as total card spending increased for UI recipients, with the y/y rate now running above non-UI recipients (after running below prior to the expanded benefits). 

Consumers’ willingness to continue spending throughout the pandemic is a big variable in retailers’ import demand. The ports of Los Angeles and Long Beach are congested at generational proportions. Every single anchorage space in both ports is full and six of the 10 contingency anchorages in Huntington, California, are being occupied by container ships destined for LA. 

The Signal, a digital forecasting tool provided by the Port of LA, indicates no letup in freight anytime soon. It expects imports to rise sequentially every week through the end of the month. Many retailers are still months behind on inventory replenishment. Although retail imports were up 15% y/y each of the last five months of the year, it just barely made up for the early-year trough. When taking 2020 as a whole, retail imports were only up 1.5% y/y, while retail sales were up 4.1% y/y as of November. 

So whether or not consumers continue to spend at strong rates (we think they will due to stimulus, which has only been partially disbursed), there should be enough inventory replenishment demand to keep freight flowing at an elevated pace. 

Additionally, the December industrial production data was very encouraging for freight markets. Production came in up 1.6%, easily beating expectations of a 0.5% gain. It is a healthy sign for both the freight markets and the wider economy to find other drivers beyond consumer demand. The vaccines are coming. As such, it is a matter of when, not if, spending reverts back to services. Strong industrial demand is a necessary and favorable tailwind to keep the freight bull market alive through the end of 2021. 

On a negative note, only two of the 15 major freight markets that we monitor as a broad, representative benchmark were positive on a week-over-week basis. This ratio weakened from the stronger levels it has become accustomed to in recent months as the freight market rallies. The markets with the largest gains this week in OTVI.USA were Laredo, Texas (10.69%) and Savannah, Georgia (2.83%). The markets with the largest drops this week in OTVI.USA were Fresno, California (-12.99%), Atlanta (-9.49%), and Memphis, Tennessee (-8.16%)

SONAR: OTVI.USA

Tender rejections slipping but still elevated

The Outbound Tender Reject Index (OTRI) continued its gradual descent from the all-time high of about 28% in December to 21.93% currently. While the decline is significant, it shouldn’t be taken as a sign that the market has gained a material amount of capacity and has loosened. Rather, the ongoing rebidding season is pushing contract rates higher toward spot rates, leaving carriers with less desire to reject contracted freight. 

The freight market is still incredibly tight, and capacity is not easy to source versus historical standards. Now that tight market is being rewarded with higher contract rates, which could likely put downward pressure on both tender rejections and spot rates in the coming weeks. 

This doesn’t mean we should expect tender rejection rates to fall back near historical averages. Freight volumes remain up 20% y/y and are not showing any signs of slowing anytime soon. Indeed, the record new equipment orders that have captivated the industry will impact capacity at some point. However, it will take several months for this equipment to be delivered and even then, if the bottlenecks at driver training schools are not resolved, the impact could be muted. 

From a geographic perspective, many of the markets that had seen falling tender rejection rates since Christmas reversed trend this week. West Coast markets, particularly Los Angeles and Ontario, California, saw tender rejections pick up for the first time in 2021 this week. Cross-border markets along the Mexican border also showed signs of relative tightening this week with Albuquerque, New Mexico, and Houston, McAllen and El Paso, Texas, all tightening this week. 

SONAR: OTRI.USA

For more information on the FreightWaves Freight Intel Group, please contact Kevin Hill at [email protected], Seth Holm at [email protected] or Andrew Cox at [email protected]

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