The sub-seasonal trucking market is still weak and loose

The US truck market is still weak, with contract shipments being accepted around 5.5% lower than a year ago, and slack, as only 5.5% of contracted truck bids are rejected by contractors. carriers.

When market conditions are favorable for carriers, they reject more contracted goods and put their resources into the spot market, trying to maximize the yield or revenue per loaded mile. When market conditions are unfavorable, couriers tend to refuse fewer shipments and to accept what is offered to them, optimizing the use of resources.

“The capacity is available,” a business analyst at a large national commodity brokerage firm said Wednesday morning. “The loads are moving. There is some buzz around the potential [rail] strike, but only between some shippers.

Trucking capacity is scarce across the country. The chart below shows tender rejection rates for the country’s five largest markets: Los Angeles is the loosest, rejecting only 2.32% of its outbound cargoes, while Harrisburg, Pennsylvania is the most narrow of the big five markets, rejecting 7.39% of shipments, a far cry from the more than 20% rejected by that market in March.

(Graph: FreightWaves SONAR. Outbound offer rejection rates for Los Angeles, Chicago, Atlanta, Dallas, and Harrisburg. To learn more about FreightWaves SONAR, click here.)

Commenting on the accommodative market conditions, a commodity broker told FreightWaves Wednesday morning that “everything is still quite easy and leaving Georgia is really easy: there are no goods leaving Georgia. And we had no problem moving the goods from Los Angeles. ”

In a customer note on Tuesday, Susquehanna Bascome Majors equity analyst noted that “internal truck load rates (including fuel) are trending sub-seasonally for the eighth consecutive week, marking the longest sub-season series in our [eight-plus] years of historical data “.

The profound weakness of the spot market for trucks – diesel prices have also been falling steadily since July – has already manifested itself in the greater willingness of shippers to ask for reductions in contractual rates. In early spring, some shippers hesitated to aggressively reassess their goods due to uncertainty about the status of the truck’s loading cycle. Unpredictable spikes in demand related to lockdowns and fiscal stimuli had left them without sufficient capacity in 2021 and they didn’t want to lower the rates on their routing guides just to heat the market up again.

But many shippers have now lowered their contract rates and in fact the freight is moving at those substantially lower rates and it shows up in the SONAR data. Two weeks ago, commodity brokers told FreightWaves that it “looks like a typical race to the bottom” and now we have the quantitative data.

The chart below shows the initial contract truck load transaction ratio in SONAR’s freight payments dataset and clearly illustrates a sharp decline from mid-July to mid-August of around 5.8%. This is a relatively rapid drop for contract rates and they may resign again before the peak season.

(Graph: FreightWaves SONAR. Van contract rate per mile, initial report, in US dollars per mile. For more information on FreightWaves SONAR, click here.)

On the railways, intermodal volumes are actually constantly improving, despite congestion and staff and capacity problems. After experiencing a negative trend on an annual basis (y / y) for most of 2022, intermodal volumes have recently entered positive territory. Since the beginning of the year, the best performing railway raw materials have been those closely related to food and energy: volumes of grain have soared, as have coal, sand frac and chemicals.

(Graph: FreightWaves SONAR. Outbound rail container volumes. For more information on FreightWaves SONAR, click here.)

Looking further upstream, the tariffs of transpacific ocean containers have continued their rapid decline. On Wednesday, the Freightos Baltic Index Daily spot rate – from China to the West Coast of North America is $ 3,973.14 per forty-foot equivalent unit, down a whopping 31% month-over-month (m / m). The Drewry World Container Index Shanghai to Los Angeles spot rate is now $ 4,782 per FEU, down 30% m / m.

(Graph: FreightWaves SONAR. Transpacific ocean rates in US dollars per FEU. To learn more about FreightWaves SONAR, click here).

Given the rapid decline in European consumer demand amid the economic stress of an energy crisis, steamship lines will have difficulty adjusting capacity to avoid further deterioration of load factors, utilization and ultimately capacity. rate. With transpacific and northern European trades both experiencing pronounced smoothness, there are fewer lanes remaining that can productively deploy the extra capacity of large ships.

FreightWaves has been warning of imminent and severe drops in container flow since June. Now it’s here. Data on ocean container bookings for inbound shipments to the United States in FreightWaves’ Container Atlas shows a continued decline. The chart below captures container bookings from all ports globally to all US ports. (Note that delivery times are approximately 8-12 days, depending on the origin, so these bookings can be up to a week and a half before departure.)

(Graph: FreightWaves SONAR Container Atlas. Ocean Booking Volume Index, all global ports to US ports. To learn more about FreightWaves SONAR, click here).

Space booking demand on container ships fell perfectly in line with ocean container spot prices, as the Ocean Booking Volume Index for all global ports to all US ports dropped 28.8% m / m. Remember that these bookings are made prior to departure and that implied volatility may or may not be mitigated by queues and congestion at the ports of disembarkation.

To complete the macro picture, persistently high inflation in the US does not bode well for commodity volumes. The August CPI value came in at plus 8.3% yoy and plus 6.3% excluding food and energy, which implies a generalized upward pressure on prices on an entire range of goods. Consumers can and have shifted their buying market down to stretch their dollars – for example, buying private label products instead of branded groceries – but the higher costs that outweigh wage increases do not they can have nothing but a deleterious effect on transport volumes, all else being equal.

The higher-than-expected inflation number makes a strong hawkish reaction from the Federal Reserve more likely and means the Fed is far more likely to over-correct and send the economy into a recession than a soft landing. If unemployment starts to rise, both domestic and international transport markets will face renewed downward pressure.

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