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Monthly Forecast

Tender rejection rates continued to stabilize through March, so capacity should be relatively loose into late April. Most volume-related anomalies have been originating on the West Coast in the southern California markets where carriers are currently positioned, as reflected in the very low 1.72% tender rejection rate in Los Angeles. Seasonally speaking, the spring produce rush begins at any point between April and June, but the region is currently oversupplied, so little disruption is anticipated from that perspective.  

“Persistent volume softness in major hubs in March through the end of quarter makes it harder to see meaningful tightening in April,” said Zach Strickland, FreightWaves Director of Freight Market Intelligence. “We aren’t seeing data that would shift the balance of power away from shippers.”

To the extent that some major markets like Joliet, Illinois, posted a significant end-of-quarter surge, this growth does not feel like a sustainable step change in volume and should abate in April.

Monthly Recap

March started with a rapid increase in volume, climbing over 5% in a 5-day period. To end the month, however, volumes ran 3-17% below last year’s values in freight markets. Atlanta, Joliet, IL, and Harrisburg, PA–three of the five largest freight markets by volume–are down year-over-year. Harrisburg, represented by the purple line, was the most volatile, swinging between positive and negative double-digit growth rates over the course of March. We don’t see Harrisburg’s late month surge lasting through end-of-quarter.

Capacity remained loose, however, as national tender rejection rates ticked up only briefly at the beginning of the month to a peak around 7.39%, before steadily declining to end the month under 6.5%. With little large-scale disruption and no significant weather events, spot market rates slid in line with tender rejections, averaging about a cent and a half less sequentially versus February.

*For the OTVI.USA chart, remember that the value is indexed to 10,000 on March 1, 2018; the number doesn’t represent an absolute number of loads. 

Business Intelligence Insight

The data is showing us strong signs that 2019 will be a very different year than what we experienced in 2018. Last year brought unprecedented rates as a result of high demand and a shortage in capacity. So far, 2019 is seeing lower demand and a clear excess supply of capacity. This shift in the balance has lead to rates trending well below their 2018 levels, and outside of some localized tightness, as spring produce season picks up, we are expecting this trend to continue.

The tender rejection data has made it very clear that carriers are taking the freight they are being tendered. With less freight making its way to the spot market, carriers without contract freight need to be more competitive to keep their trucks moving. Shippers who are savvy enough to test the spot market with their non-contracted transportation needs will realize cost savings.

Macroeconomics

There are several macro data points flashing warning signals, and one of those is the ballooning Inventory to Sales Ratio, which represents the average amount of monthly inventory in warehouses to monthly sales figures. A value of 1.5 indicates there is one and a half months’ worth of inventory available in warehouses. Slowing economies tend to see a spike in inventory levels as sales deteriorate. The December TBIS value jumped 2.2% from November to December, the largest monthly increase since December of 2015, when GDP quarterly growth dropped to 0.4%. Tariff pull-forward more than likely has an impact on this number, as international shippers have been pulling inventory into the U.S. to avoid cost increases on imports, but this may ultimately depress retail prices as warehouse space reaches capacity.

Shippers should check their inventory levels and adjust procurement accordingly.

“Sales at building materials & garden equipment stores fell by 4.4% during February, which suggests that the cold weather that plagued much of the country in early February had some impact on sales performance,” said FreightWaves chief economist Ibrahiim Bayaan. “However, trouble in the retail sector stretched well beyond the weather-sensitive areas of the economy, as seven of the 13 major industries reported declines during the month.”

*The inventory/sales ratio is expressed as the number of “months-worth” of inventory retailers have in stock.

Targeted Segments

Lumber shipments on the rail have continued to soften after a strong showing in 2018, falling 15% since March of last year. Lumber shipments are indicative of construction and paper demand. The housing industry has shown signs of softening in the past several months, except for single-family housing starts having their best month, January’s 926,000 units, since last March’s 938,000 units. There are mixed signals here, but the overall trend for the lumber and paper industries is a softening one.

Flatbed capacity availability is highly seasonal, but this year’s peak should be softer than 2018.

Housing starts are an important indicator because of their manifold downstream impacts. A new home build starts with flatbeds bringing excavating equipment, lumber, and bricks; then dry vans carry in goods like carpet, tile, and wood floor covering, and finally durable goods like refrigerators, washing machines, and furniture arrive after the house has been sold.

*The rail traffic originated by intermodal containers is expressed as the number of carloadings per week.

Long-Term Strategy

Large fleets used the Trump tax cut and higher 2018 revenues to complete a replacement cycle, ordering a record number of new trucks (green line). What’s fascinating is that prices for three-year-old models (white line) rose all year long, indicating that small and mid-sized fleets bought up trucks at the same rate that large carriers replaced their fleets, adding substantial capacity to the market.

In FreightWaves’ view, most of the capacity entering the market was added by smaller fleets, carriers that normally do not move large volumes of contracted freight. This capacity, therefore, is best sourced through third-party logistics providers and freight brokerages who specialize in developing relationships with small carriers.

*On the trucks chart, the white line is the average price paid each month for three-year-old trucks in USD, corresponding to the Y-axis on the right of the chart. The green line is the number of new truck orders per month, corresponding to the Y-axis on the left of the chart.

A Message From Matt

Arrive Logistics has always focused on raising the standard of what it means to be a modern freight brokerage. Our first priority is to help you achieve your business goals. That is why I am thrilled to now be able to provide our customer base with exclusive market data on a monthly basis.

This is our first month trying this initiative, so please leave your feedback using the button below. We are interested to hear how valuable you find this tool and if this is an effort we should continue. We look forward to being your partner in freight in 2019 and beyond.

Thank you,
Matt Pyatt, Co-Founder & CEO

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