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.
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Conditions remain highly challenging for shippers. Capacity constraints are slowing down the global supply chain, limiting economic growth and resulting in inflated prices. Truckload demand, which is already at highly elevated levels, only stands to improve as these supply chain constraints are resolved. These trends indicate further spot rate growth is likely through the remainder of the year with tightness likely persisting through the first half of 2022.
• Nationwide freight volumes remained elevated in September, buoyed by record imports and continued inventory replenishment due to strong consumer spending trends.
• Tender rejection and load to truck ratio data indicate conditions remained relatively consistent in September, with some tightening with typical quarter-end demand surges.
• National average dry van and reefer spot rates increased to new all-time highs of $2.83 and $3.23 per mile, respectively, in September.
• National average dry van and reefer contract rates increased to new all-time highs of $2.85 and $2.97 per mile, respectively, in September. This was the fifteenth increase in the last sixteen months for both equipment types.
• Early indications point to continued spot and contract rate increases in early October, although some seasonal relief is possible before retail peak season ramps up further.
• Truckload supply recovery obstacles remain vast. Issues range from parts and labor shortages at truck and trailer OEMs to driver shortages and are unlikely to be resolved in the near term.
• Demand is expected to remain strong, fueled by record imports and low inventories as we head into peak retail season.
• Shippers face more challenges than ever before as roadblocks throughout the global supply chain limit growth and raise costs.
• Shippers who are able to be flexible with carriers, who are dealing with many challenges of their own, are likely to benefit from improved service levels as conditions deteriorate further in the fourth quarter.
It comes as no surprise that truckload demand was the driving force behind the tight market conditions we saw persist throughout September. Data indicates volumes are fairly consistent with levels seen in August, indicating no major change in overall freight volumes. The biggest factors behind the strong demand trends continue to be record imports and inventory replenishment driven by elevated consumer spending.
FreightWaves SONAR Outbound Tender Volume Index (OTVI), which measures contract freight volumes across all modes, was up 3% year-over-year at the end of September. It is important to note that OTVI includes both accepted and rejected load tenders, so we must discount the index by the corresponding Outbound Tender Rejection Index (OTRI) to uncover the true measure of accepted tender volumes. If we apply this method to the year-over-year OTVI values, the growth in volume increases to 9%. Tender rejections are now lower than they were a year ago, contributing to the OTRI adjusted measure’s higher growth in actual freight volumes.
When drilling down to specific equipment types, the dry van tender volume index was flat and the reefer tender volume index was down 11%, year-over-year. This equated to a 5% increase and a 1% decrease in actual volumes for the two modes, respectively. Tender rejections for both equipment types are lower year-over-year, resulting in improved growth rates when considering actual volumes.
DAT reported dry van spot load posts decreased by just 1.5% month-over-month, but are still up more than 31% year-over-year in September. This is a pullback from August, where year-over-year spot load posts were up 48.6%. As we see on an annual basis, there was an end-of-month and end-of-quarter push that resulted in a spot freight jump late in September. This was apparent in the 7.8% increase in spot load posts in the final week of the month compared to the prior week.
FTR and Truckstop’s Total All Mode Spot Volume Index finished September up 9% from the last week in August. The all mode index remains up 30% year-over-year, down from 112% year-over-year at the end of June, 66% at the end of July and 41% at the end of August. This is consistent with the DAT spot volume trends and is a result of rapidly rising rates a year ago more so than a pullback in volumes this year. In fact, growth was seen in all four weeks in September.
Capacity conditions remained constrained in September, resulting in additional upward pressure on truckload rates. Carriers continue to point to truck and trailer shortage challenges and driver availability issues all contributing to their inability to keep up with demand.
Sonar Outbound Tender Reject Index (OTRI) measures the rate at which carriers are rejecting the freight they are contractually required to take. The index is currently at 21.65%, down from 23.28% seen in the peak leading up to Labor Day. Since mid-July, the national rejection rate has been fairly consistent, bouncing back and forth between 20% and 23%. Slight shifts in seasonal pressures are the main reason for the mild ebbs and flows, but the overall consistency is indicative of the stable market conditions experienced over that time period. It is becoming increasingly clear that elevated contract rates alone are not going to be what solves the tender rejection issue facing the market today.
The DAT Load to Truck Ratio measures the total number of loads compared to the total number of trucks posted on their load board. In September, the Dry Van Load to Truck Ratio decreased to 6.32, down 2.2% month-over-month, but up 15.9% year-over-year. The Reefer Load to Truck Ratio decreased to 13.5, down 9.5% month-over-month, but up 39.4% year-over-year.
The weekly load to truck ratios show conditions tightened in the last week of the month. This is in line with the surging tender volumes associated with the increased sense of urgency amongst shippers at the end of the quarter.
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 index, conditions remained mostly flat but saw some tightening as of late. Looking forward, normal seasonality indicates easing conditions throughout October and up until Thanksgiving, where we would expect to see tightening conditions throughout the remainder of the year in line with retail peak shipping season. Their straight-line forecast indicates we will see conditions finish the year well above any other year on the chart, with conditions tighter than at any point this year except in the immediate aftermath of the February winter storms.
Dry Van and Reefer equipment rates increased in September due to continued demand strength and no improvement in capacity conditions.
Dry van spot rates reached a new all-time high of $2.83 per mile, including fuel, in September. Early October results show dry van spot rates continue to rapidly increase, and currently sit at $2.87 per mile. Reefer spot rates climbed $0.09 to $3.13 per mile in August, and have also increased rapidly, to $3.25 per mile, in early October. DAT noted that spot rates have stayed at record levels and continue to buck seasonal trends as a result of supply chain disruptions, port congestion, equipment shortages and limited driver availability. These are the same themes that have plagued the domestic freight market for months, and very little has changed. The outlook for dry van and reefer spot rates indicates it is likely we have not yet seen the peak. Flatbed rates, however, continue to moderate and currently sit at $3.05 per mile in early October, down just $0.06 per mile from $3.11 in July.
Dry van contract rates, which have not declined month-over-month since May 2020, reached a new all-time high in early October at $2.53 per mile, excluding fuel. Flatbed rates have followed suit, currently sitting at a record high of $2.90 per mile, excluding fuel, while reefer contract rates are down $0.01 so far month to date, the first decline since January.
The outlook for capacity remains the same. Arrive’s tracked metrics and August survey of core carriers indicate truck, trailer and driver availability issues continue to be the main factors for this trend.
FTR’s Driver Labor Index increased just 0.2% in August based on 5,400 payroll jobs added on a seasonally adjusted basis in the month. This increase leaves total payroll employment at 26,000 jobs, or 1.7%, below February 2020, down slightly from 2.2% a month ago.
One of the trends we have seen present itself as of late is the growth in capacity on smaller fleets. Since July of 2020, the Federal Motor Carrier Safety Administration (FMCSA) has authorized more than 100,000 new for-hire carriers. These carriers comprise just 185,000 drivers. This means the average size of fleet added to the market is just 1.85 trucks, indicating a large increase in the number of smaller fleets on the road. Between March 2020 and September 2021, the number of one-truck operations holding authority has increased by 52%, and the number of carriers with two to five trucks rose by 29%. Carriers with 100+ power units have seen their total market share of trucks on the road decrease from 52% to 49%.
These trends are important because they tell the story of drivers choosing to pursue going out on their own instead of leasing their equipment and operating under the authority of a more established, larger fleet. When owner-operators go on their own, they have the flexibility to play the spot market, chasing the bigger money loads. It is difficult to quantify the extent of the impact, but we believe this trend is resulting in at least some additional upward pressure on spot rates. We also believe this trend makes capacity as a whole less available to shippers, particularly those shippers that do not work with smaller fleets, and is just another complex dynamic further complicating the freight market’s future recovery.
The equipment side of the equation saw some slight improvements month over month, but supply chain issues are still creating challenges for truck and trailer OEMs. Class 8 truck production in August was up 56% from July when production was highly limited due to semiconductor shortages. This helped lower the average order to delivery lead time to 11.6 months. This is a major improvement from the 17.8 months seen last month, but still represents almost a full year’s worth of backlogs for truck manufacturers to work through. New truck orders also increased in August as OEMs began booking orders for next year. New trailer production levels were unchanged in August, as OEMs produced the same number of units on a per-day basis. FTR continues to indicate that the industry is in a holding pattern until the supply chain issues impacting parts availability for truck and trailer production are resolved. In the meantime, it is going to be difficult for fleets to acquire new trucks or trailers.
FTR’s forecast for truck utilization, the share of seated trucks actively engaged in freight hauling, remains mostly unchanged in the near term, but is now slightly stronger than in previous forecasts for the second half of next year. Utilization is expected to be above 97% through the end of next year, up from 96% last month. Overall this change is minimal when considering that the ten-year average for utilization is 91%. FTR noted that even if utilization softens relative to their expectations, they do not expect the trucking industry to see a normalization similar to what was seen after the 2018 peak. Improving driver supply indicators are a sign that most of the challenges with capacity will remain with equipment shortages, not with drivers.
Manufacturing and industrial production are bottlenecked severely by supply chain issues. Lead times for raw materials have hit new all-time highs. This has led to an inability for manufacturers and retailers to keep up with fulfilling customer orders, which has slowed the economic recovery and will continue to do so until the supply chain issues are resolved. Despite these issues in goods production, truckload demand has remained extremely high for more than a year and the outlook for future truckload demand is extremely strong as the theoretical backlog of future freight, in the form of unfilled orders, remains substantial. It is possible that consumer demand will fall before inventories are replenished and orders can be fulfilled, but as of now, there are no indications that this has begun to happen.
In the short term, the retail peak shipping season should supply the market with plenty of freight throughout the fourth quarter, particularly from mid-November through the end of the year. Strong import volumes are expected to continue supplying much needed raw materials to support manufacturing and industrial production, as well as finished goods to fulfill backlogged customer orders. In early October, there were as many as 75 ships at anchor off the coast at the ports of Los Angeles and Long Beach, up from 25 a month ago. Backups are also spreading to the East coast ports and ships are attempting to bypass the congestion in Southern California. The ports are doing everything they can to improve the situation, but it is unlikely that significant relief will be felt prior to early 2022 once the backlogs can be worked through.
FTR’s latest truck loadings forecast shows a slightly weaker outlook for 2021 than last month’s forecast. In the dry van sector, the forecast shows a total truck loadings increase of 5.8% for the full year, down from 6.9% a month ago, but the outlook for 2022 has improved from 3.3% last month to 4.2% this month. Supply chain congestion forcing volumes from the fourth quarter into next year is the primary reason for this shift. Growth was seen month-over-month across all equipment types for the full year 2022 forecast. Refrigerated loadings are expected to see 4.0% increases, while flatbed loadings are expected to climb 5.3% for the full year of 2021. Both of these forecasts are improvements from last month as reefer and flatbed loadings forecasts are up from 3.6% and 4.5%, respectively.
The Bank of America (BofA) consumer spending data provides visibility into changing consumer behaviors and spending patterns. Total card spending is up 16.4% year-over-year and 17.2% compared to 2019, for the 7-day period ending October 2nd. These numbers indicate consumer spending is still significantly elevated as we enter October.
Trends BofA has specifically noted include rebounded spending on furniture and building materials, reflecting the latest increase in home sales. Airline spending has also rebounded, indicating less concern from the Delta variant. Declines in lodging spending indicate that an increase in airline spending is likely for future travel.
BofA also noted that spending at daycare centers in September was 52% above last year’s level and only 13% below the same time in 2019. This is an encouraging sign as reliable childcare is critical for the recovery of the labor force.
The unemployment trends have leveled off a bit in September as initial claims in the most recent week came in at 326,000, up from 310,000 from last month, but remain near the lowest totals since the start of the pandemic. Continued claims have declined further, reaching their lowest levels since the start of the pandemic, down to 2.71 million from 2.78 million last month, on a weekly basis.
Conditions have never been more challenging for shippers, particularly those who rely on imports. Supply chain constraints have resulted in elevated costs and limited availability for finished goods, raw materials needed for production and transportation capacity. For the domestic transportation market, relief comes when equipment manufacturers can source the parts needed to work through the backlogs and deliver on new truck and trailer orders. The global supply chain issues are more complex. Backlogs at the ports, container and chassis shortages and covid outbreaks affecting production overseas are all key contributing factors. The path to easing these pressures will take time to work through on both fronts. As a result, shippers should expect to see increased tender rejections and increased tightness drive elevated truck costs across all modes, nationwide, through the end of 2021 and likely through the first half of 2022. As the fourth quarter peak season commences, shippers should have clear expectations of their transportation providers and hold them accountable to their commitments, while understanding that carriers are dealing with challenges of their own. Flexibility and a partnership mentality will go a long way in maintaining quality service as conditions deteriorate further in the fourth quarter.