april 2022

Freight market conditions underwent a meaningful shift in March as a result of surging diesel prices. Increased tender acceptance rates and routing guide compliance limited opportunity in the spot market, sparking competition and driving down spot rates. The forecast for the remainder of 2022 is still expected to experience deflationary rate conditions, but how far and how quickly rates fall is mostly dependent on how long fuel prices remain elevated and how carriers playing in the spot market react.

FUEL COSTS

Rapidly changing conditions in the domestic freight market that took hold in March have continued in early April, largely driven by elevated fuel prices. The national average diesel price per gallon was $5.073 as of Monday, April 11th, which translates to a fuel surcharge of $0.63 per mile according to the DAT’s calculations. That has trended down in recent weeks from the $0.66 peak in mid-March, but remains up significantly from $0.47 in late February, and $0.37 back in early October.

This upward trend in fuel surcharge rates is important because they are typically more likely to be negotiated and established on contractual rate agreements, but not necessarily in the spot market. That means contract rates, including fuel, surged overnight and immediately became more advantageous than spot market rates. Though fuel prices were elevated, contracted carriers did not have to haggle to get the extra fuel surcharge — it was automatically paid in accordance with the contractual agreement due to the rise in the national average, resulting in declining tender rejection rates or improved contract rate compliance.

The tender rejection rate was already trending down in January and February, but there was a clear acceleration that aligned with rising fuel costs in early March. After falling roughly 18% over the first two months of 2022, the rejection rate has fallen an additional 41% since. When tender rejections decline, less freight falls to the spot market.

Also contributing to the softening spot market was the increase in smaller carriers and single truck operations entering the space over the past two years, most of which operate almost exclusively in the spot market. When spot demand began to fall, many of these carriers were suddenly seeing decreased optionality. DAT’s spot load boards saw a 29% month-over-month increase in spot truck posts, evidence that carriers were having a harder time finding freight.

That means carriers with contract business are happily running their loads with the added fuel surcharge, while carriers who have been playing the spot market are being forced to lower their rates to compete and maintain volumes.

One could assume these trends indicate that freight demand has fallen off a cliff, especially when factoring in the impact of rising inflation on consumers. However, the data does not support that conclusion. In fact, consumer spending remains strong and OTRI adjusted tender volumes (accepted tenders) are up year-over-year despite total tender volumes declining by more than 15% as of early April. We have seen the massive increase in contract rate compliance drive up volumes moving on primary carriers, resulting in rapid declines in truckload demand in only the spot market. 

These economic forces may have a more significant impact over time, but we currently believe this is simply a truckload demand shift rather than a decline.

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Truckload
demand

The FreightWaves SONAR Outbound Tender Volume Index (OTVI), which measures contract freight volumes across all modes, was down 15.1% year-over-year in early April. However, it is important to note that OTVI includes both accepted and rejected load tenders, so we must factor in the corresponding Outbound Tender Rejection Index (OTRI) to uncover the true measure of accepted tender volumes. 

Truckload
Supply

Sonar Outbound Tender Reject Index (OTRI) measures the rate at which carriers reject the freight they are contractually required to take. The index was at 11.07% in early April after experiencing an acceleration over the past month in what had been a fairly consistent decline, from a high of 22.75% in the first week of January and 18.77% in early March. This is the lowest OTRI since pandemic-related disruptions were ramping up in mid-June 2020, nearing levels we would expect to see in an equilibrium market.

Truckload
Rates

Month-to-date in April, easing conditions in the spot market and normal seasonal slowdowns early in the second quarter have resulted in plunging spot rates for Dry Van and Reefer equipment, while flatbed rates continue to rise as building and construction season gets underway.

multimodal
notes

Economic activity in the manufacturing sector grew in March, with the overall economy hitting 22 consecutive months of growth. LTL volume remains solid as capacity is still being strained by the supply chain struggling to recover from labor force shortages and backlogs caused by the pandemic.

Capacity
Outlook

Changes to the capacity landscape as a result of rising fuel costs and shifting market conditions could take several months to play out. 

The strong growth in single truck operations since mid-2020 has created downside risk exposure for truckload rates due to the nature of the competition it creates in the spot market. We are unsure of how long the elevated fuel rate environment will last and ultimately how large of an impact this will have on capacity trends, but if small operations begin to close up shop, used equipment and qualified drivers should start to become available to larger fleets.

Volume
Outlook

Forecasting freight demand remains challenging, as COVID-related shutdowns in China and the war in Ukraine both present unknown risks to future availability or demand for certain commodities or materials.

CONSUMER
SENTIMENT

The consumer price index rose to a new 40-year high again in March, and prices have now climbed 8.5% year-over-year. The data indicates that rising prices have not yet had a significant impact on consumer demand, however, it is our belief that decreased consumer spending power will result in declining consumer demand should inflation persist or worsen. 

Conclusion

The short-term outlook is clear: Elevated contract rates will continue to support a demand shift away from the spot market, resulting in continued downward pressure on spot rates through at least mid-May when summer peak season commences.

Truckload Demand

The FreightWaves SONAR Outbound Tender Volume Index (OTVI), which measures contract freight volumes across all modes, was down 15.1% year-over-year in early April. However, it is important to note that OTVI includes both accepted and rejected load tenders, so we must factor in the corresponding Outbound Tender Rejection Index (OTRI) to uncover the true measure of accepted tender volumes. 

Applied to year-over-year OTVI values, the negative growth trend in tender volumes flips to an increase of 0.4%. Tender rejections are down 50.8% — from 26.35% to 12.97% year-over-year — which helps explain the increase in accepted tender volumes amid the large decline in total tender volumes.

As for specific equipment types, year-over-year, the dry van tender volume index was down 15.1% and the reefer tender volume index was down 29.3%, equating to a 0.7% increase and a 1.5% increase in actual volumes for the two modes. On March 1st tender rejections were lower by more than 52% year-over-year for both dry van and reefer equipment, indicating positive growth rates when considering actual volumes. 


Year-over-year DAT data shows that spot volumes were up by just 3.7% in March, down by more than 100% year-over-year growth in January, and 24% in February. This is in line with the decline in tender rejections, as fewer loads are falling to spot boards. 

The 13% week-over-week decrease in the first full week of April also confirms that spot demand is falling even faster, yet remains in line with normal Q2 seasonality trends.

FTR and Truckstop’s April Total All Mode Spot Volume Index was down 13% from the first week of March and is now down 18.4% year-over-year — a sharp drop from being up 32% just two months ago. 

Last year, spot volumes were still elevated in March and April following the ice storms that crippled southern states, making current year-over-year comparisons more challenging. That said, recent spot volumes have continued to trend downward in early April. 

This contrasts historical averages for the FTR/Truckstop data, which is heavily weighted in the flatbed and specialized equipment space and therefore sees volume increases in early spring due to new construction. It is, however, important to note that even though total spot activity is on the decline in Truckstop’s dataset, there is strong evidence to support that the early April flatbed market is robust as building and construction season ramps up.



Truckload Supply

Sonar Outbound Tender Reject Index (OTRI) measures the rate at which carriers reject the freight they are contractually required to take. The index was at 11.07% in early April after experiencing an acceleration over the past month in what had been a fairly consistent decline, from a high of 22.75% in the first week of January and 18.77% in early March. This is the lowest OTRI since pandemic-related disruptions were ramping up in mid-June 2020, nearing levels we would expect to see in an equilibrium market. 

While we believe recent improvements in the data are representative of improved contract compliance due to elevated contract rates, these trends suggest that current capacity is better equipped to handle demand than it has been in recent memory. Still, the market remains sensitive to major disruptions or capacity events that could suddenly reverse recent gains in contract compliance.

OTRI has declined rapidly throughout March and April, illustrating the immediate impact to contract routing guide compliance as fuel prices surged.

Dry van and Reefer tender rejections followed a similar trend to the all mode index, falling rapidly in alignment with the surge in diesel fuel prices.

The DAT Load to Truck Ratio measures the total number of loads compared to the total number of trucks posted on the load board. In March, the Dry Van Load to Truck Ratio decreased to 4.57, down 37.7% month-over-month and 20.9% year-over-year. Recent trends indicate conditions may ease further in early April across all three equipment types.

The Reefer Load to Truck Ratio also decreased sharply to 8.39, down 38.9% month-over-month and 31.3% year-over-year. 

Weekly load to truck ratios illustrate that conditions in the spot market have continued to ease into April. This otherwise typical trend is being exacerbated by rising fuel prices and the sharp decline in spot truckload demand. Similar to what we saw with OTRI measures, Load to Truck ratios are approaching levels we would expect to see in equilibrium markets for van and reefer equipment. With construction season getting underway in warmer climates, flatbed activity is still high and keeping ratios high as well.


The Morgan Stanley Dry Van Freight Index is another measure of relative supply — the higher the index, the tighter the market conditions.

According to the latest index, conditions followed a similar trend to DAT and Freightwaves SONAR data, easing rapidly throughout March and into early April. The black line with triangle markers on the chart provides a great view on what directional trends would be in line with normal seasonal patterns based on historical data. 

Looking forward, normal seasonality would indicate a continuation of the easing conditions before seeing demand pick back up in mid May. Memorial Day to July 4th is consistently one of the busiest times for freight throughout the year, and the trends we see in the peak summer season will be very telling as to whether or not recent easing trends will hold through the remainder of the year.

Truckload rates

Month-to-date in April, easing conditions in the spot market and normal seasonal slowdowns early in the second quarter have resulted in plunging spot rates for Dry Van and Reefer equipment, while flatbed rates continue to rise as building and construction season gets underway. Normal seasonality would indicate that we should expect further downward pressure on spot rates through mid-May and into peak season. 


Spot rates have trended down at a rapid pace and are on pace to finish the month down year-over-year for the first time since 2020.

Dry van contract rates have stayed strong and are currently hovering around $2.65 per mile, excluding fuel. 

This trend — where contract rates do not fall as quickly as spot rates — frequently occurs after spot rates peak and begin to descend. Contract rates are tied to longer agreement terms and can be locked in place for a year or more. Given we are still expecting further declines in the month of April, many shippers are waiting to see how rates trend over the next month before rebidding their business. These factors are creating stickier rate trends for contract freight and a growing rate spread between the contract and spot rate, which in turn means further spot declines are likely as contract compliance is expected to improve. 

Reefer contract rates are starting to decline and currently sit at $2.71 per mile, excluding fuel. 

The contract rate declines are not nearly as rapid as reefer spot rates, which are collapsing as quickly as dry van spot rates.The flatbed market is seeing rising contract rates in early April, currently at $3.02 per mile, excluding fuel.

Multimodal Market Notes

LTL Insights

Mexico/Cross-Border Insights

We continue to note the strength of Laredo, Texas as a strong proxy for cross-border freight movement due to its high volume of cross-border truck traffic.

OTVI.LRD - Outbound Volume (Proxy for Northbound (NB) Mexico/US Volume)
ITVI.LRD - Inbound Volume (Proxy for Southbound (SB) Mexico/US Volume)
OTRI.LRD - Outbound Tender Reject Index (Available capacity at the border)

Capacity Outlook

Changes to the capacity landscape as a result of rising fuel costs and shifting market conditions could take several months to play out. 

The strong growth in single truck operations since mid-2020 has created downside risk exposure for truckload rates due to the nature of the competition it creates in the spot market. We are unsure of how long the elevated fuel rate environment will last and ultimately how large of an impact this will have on capacity trends, but if small operations begin to close up shop, used equipment and qualified drivers should start to become available to larger fleets. 

Used truck prices hit an all time high in February prior to the fuel cost surge. March data is yet to be released, but we expect current market conditions to drive prices down as declining opportunity in the spot market and additional supply from carriers leaving the market should create pressure. 

We anticipate ongoing challenges with capacity throughout 2022 as a result of equipment and labor shortages combined with fuel costs. New equipment will require time to acquire — FTR is reporting that Class 8 truck production decreased by 12% per day and build rates are not expected to see meaningful increases in the near term as semiconductor and other part shortages continue. 

The decrease in production levels led to a slight increase in the average time from order to delivery from 10.4 months in January to 11.6 months in February. FTR continues to note that new truck orders are not a good indicator of demand as OEM’s continue to meter new orders in an attempt to control backlogs, and the new truck lead time is not expected to improve next month as more orders are entered and production levels stabilize.


New truck lead time increased from 10.4 months in January to 11.6 months in February as production levels improved in the month.

New trailer production levels improved 2% in February and that should continue as parts availability improves. Similar to truck backlogs, OEMs are limiting new bookings to control backlogs, making new orders a poor indicator of trailer demand. 

FTR’s forecast for truck utilization — the share of seated trucks actively engaged in freight hauling — remains unchanged again from last month’s update, with the expectation that it is to remain at or above 97% through 2022, and 96% in 2023. Risks, however, remain mostly to the downside.

Volume Outlook

Forecasting freight demand remains challenging, as COVID-related shutdowns in China and the war in Ukraine both present unknown risks to future availability or demand for certain commodities or materials. 

While elevated inventory levels point to some pullbacks in consumer demand, they also provide some insurance that freight will continue to move should the flow of goods from China to the U.S. be severely curtailed. Having inventories on hand not only protects those holding them against rising costs due to future inflation, but also ensures availability. This has been a pain point for many over the course of the pandemic. 

Although the March Logistics Managers’ Index indicates a slight pullback in inventory levels from February, it is still the second highest reading of all time, indicating that inventories remain at historically high levels.

Global conflict also presents some upside to truckload demand, such as an increase in demand for exports of corn or grain to help offset the supply shortage that is expected in Ukraine. 

Notably, the backlog growth in manufacturing and industrial production accelerated in February as new orders rose sharply. 

Inflation remains the biggest risk to the economy. Rising costs will eventually begin to impact the consumer more severely, which in turn would slow economic growth. Continued inflation and rising interest rates would also present a downside risk to residential construction as housing costs rise due to an increased cost of building materials.


Recent events appear to have had a minimal impact on FTR’s latest truck loading forecast, which is projecting 2022 to grow by 4.1%. The forecast is still indicating growth through 2024, albeit at a slower rate. Time will tell if rising inflation will impact the forecast, but for now, all equipment segments should expect to see demand strength for the foreseeable future.


ECONOMIC INDICATORS AND Consumer Sentiment

The consumer price index rose to a new 40-year high again in March, and prices have now climbed 8.5% year-over-year. The data indicates that rising prices have not yet had a significant impact on consumer demand, however, it is our belief that decreased consumer spending power will result in declining consumer demand should inflation persist or worsen. 

Bank of America (BofA) consumer spending data, which provides insight into changing consumer behaviors and spending patterns, reported that total card spending is up 3.2% year-over-year and 24.1% compared to 2019 for the 7-day period ending April 2nd. These numbers indicate consumer spending has stayed strong despite surging prices at the pump in March.


As inflation continues to rise, we know that the same dollars spent a year ago do not equate to the same dollars spent today, so more spending does not necessarily mean more freight. 

Truckload demand is also impacted by the allocation of consumer dollars that are being spent on durable goods compared to services. March data illustrates a slight decline in services spending, but as long as domestic COVID cases remain low, we expect the pent-up demand for leisure services to continue. In turn, consumers will likely spend less on durable goods, which presents a downside risk to truckload demand.

Conclusion

The short-term outlook is clear: Elevated contract rates will continue to support a demand shift away from the spot market, resulting in continued downward pressure on spot rates through at least mid-May when summer peak season commences. Shippers should experience strong routing guide compliance and be able to hold contractual carriers to higher levels of service as pricing power tilts in their direction.

The long-term implications of the war in Ukraine, rising COVID case counts in China and the increasing effect of inflation on the American consumer are unlikely to have an impact as immediate and sudden as the rapid surge in fuel prices did. We are more likely to see that impact play out gradually in the months ahead.

Deflationary market conditions remain the most likely scenario for the remainder of the year. The pace at which rates continue to decline and how low they go will depend mostly on how long we see prices at the pump remain elevated. 

About The Market UPdate

The Arrive Monthly Market Update, created by Arrive Insights, is a report that analyzes data from multiple sources, including but not limited to FreightWaves SONAR, DAT, FTR Transportation Intelligence, Morgan Stanley Research, Bank of America Internal Data, Journal of Commerce, Stephens Research, National Retail Federation and FRED Economic Data from the past month as well as year-over-year.  

We know that market data is vital to making real-time business decisions, and at Arrive Logistics, we are committed to giving you the data you need to better manage your freight.

Glossary

SONAR TICKER: OTVI.USA

Tender Volumes are representative of nationwide contract volumes and act as an indicator of Truckload Demand.

SONAR TICKER: OTRI.USA

Tender Rejections indicate the rate at which carriers reject loads they are contractually required to take and acts as an indicator of the balance between Truckload Supply and Demand.

SONAR TICKER: ORDERS.CL8

New Truck Orders is an indicator of the trucking industry’s health and carrier sentiment, as carriers typically invest in new trucks when demand and optimism are high.

SONAR TICKER: IPRO.USA

Industrial Production measures the output of the industrial sector, including mining, manufacturing and utilities.

SONAR TICKER: CSTM.CHNUSA

US Customs Maritime Import Shipments, China to the United States measures the total number of import shipments being cleared for entry to the U.S. from China.

RATE SPREAD

Rate Spread measures the difference between the national average contract rate per mile and the national average spot rate per mile and is closely inversely correlated to movements in tender rejections and spot market volumes.

WEEKLY JOBLESS CLAIMS

Weekly Jobless Claims are used as a barometer for the pace of layoffs in the general economy.

UNEMPLOYMENT RATE

Unemployment Rate is the number of people who are unemployed that are actively seeking work.