According to the national Outbound Tender Volume Index (OTVI) national trucking volumes are almost exactly the same as they were last year. Being one year old in term of following freight market’s movement, those results may come as a shocker to those of us watching market regularly.
Spot rates are down 10-15% YoY and tender rejection rates have dropped from over 24% a year ago to 7.26% as of March 1, 2019. indicating carriers are accepting contracted loads at the highest rates since the Tender rejection Index’s (TRI) inception in early 2018.
The Discrepancy between volume and capacity
There are several factors that influence capacity and therefore rates of trucking capacity. The availability of trucking capacity is not simply correlated to freight volume. For example, volume has a definitive impact on capacity, but the rate at which it enters the market and distribution are also important factors.
Volume entering the market rapidly from multiple origins is more disruptive to capacity than large volume coming from one area slowly, over a long period of time. Basically, the difference between 2018 and 2019. consists of those factors.
Impact on contracted freight rates
Capacity must be limited or oversupplied for longer than a week or two to cause any significant impact to long-term trucking rates. In recent months, there have been trucks available where they are needed. This has pulled spot market prices down rapidly.
There have been a few of events that occurred throughout 2017 when trucks were needed in and around Houston, Florida and then all over the U.S. in a matter of weeks. The two major hurricanes and massive amounts of retail freight flooded the market in the fall of 2017.
Increasing freight volumes in 2018
The largest ports in the U.S, Los Angeles and Long Beach sparked the steady increase of freight volumes who characterized the end of the last year. Amid the trade war concerns, record inbound international volumes flooded the port cities from China.
The ports acted like a regulator in the way they could not offload the freight fast enough to create significant disruption. The lead time to get freight into the country helped carriers position their trucks effectively, as shippers gave them plenty of notice.
Freight market as it is today
The southern California markets of L.A. and Ontario account for 8.15% of the total outbound volume of the contracted freight market. It has grown slowly over the course of the past 9-10 months and the rest of the U.S. has been relatively stable. To put it in perspective the markets had 5.41% in early March of 2018. This volume did not come all at once like the 2017 hurricane and retail freight did in 2017.With more freight originating from more widely dispersed markets and capacity concentrated on the West Coast, one of the big questions heading into spring is how well the freight market will be able to maintain this stability as volumes begin to increase in other areas of the country. This past week, 91 of the 135 markets all showed increases in volume over last month and 82 of them show week over week increases.