Weekly Market Update: Freight volumes take a surprising mid-month drop

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Freight market volumes were averaging about even with 2018 levels until the past few days when tender volumes plummeted to almost 4% below last year’s volumes. The Outbound Tender Volume Index for the U.S., which measures load volumes in an index with a base value of 10,000 on March 1st 2018 levels, fell to 9,690 on Wednesday. The value indicates that volumes are 3.78% lower than this time last year when the index was 10,080.

Load volumes dropped significantly over the past several days. (Image: SONAR Outbound Tender Volume Index – OTVI.USA)

The downturn in volumes is quite shocking as it is typical to see an increase this time of year for seasonal freight to get pushed off shipper docks to hit retail stores prior to Memorial Day. Typical commodities like water and sports drinks are in higher demand along with lawn and garden equipment. Produce and construction materials tend to continually increase this time of year as well.

Produce season has been soft thus far with rates stalled out of much of California and Florida this past week. Major lanes like Fresno to New York and Miami to Atlanta showed no increase in average rate. L.A. and Fresno to Chicago showed a decent weekly increase of over 2%, but did not break through any high-level barriers, as both hit the same level as late April.

Spot rates for produce truckload shipments increased 6.25% this week. (Image: SONAR AGRATE.PHXATL)

Most shipping rates for produce shipments out of southern Texas and Arizona increased one to three percent this past week. Texas rates were coming off recent bottoms, but outbound Arizona shipments found new seasonal highs. Rates from the Phoenix market to Atlanta jumped 6.25% this week with Phoenix to Dallas jumping over 5.5%.

This winter was wetter than normal in California so there will be a delay on some of the harvests keeping rates lower for now. This may be the reason rates are increasing out of Texas and Arizona as importers are attempting to mitigate some of the supply issues surrounding the harvest delays by sourcing from other areas.

L.A. market volumes are a big reason for the national decline, dropping 12% out of L.A. this past week. These two markets account for roughly 8% of the total outbound market volume in the U.S. and have been averaging 40-60% higher volumes on a year-over-year basis over the last two months.

A lot of this volume originated from overseas shipments and shipments may have stalled as shippers react to recent trade developments concerning the new tariffs put in place. The long-term impact to the freight market has yet to be determined, but thinking there will be another year of heavy inbound international container freight would probably be a mistake as warehouse space is still difficult to find cheaply. Shippers will have to weight the cost of importing and warehousing freight versus potential additional tariff increases.

Capacity remains loose throughout the country as there has not been a sharp increase in the Outbound Tender Rejection Index (OTRI.USA) or national spot rates. Markets like Atlanta and Joliet (south of Chicago), two top-5 outbound markets, did have decent increases in tender rejections this week. Atlanta’s rejection rate climbed from 3.52% to 5.34%, and Joliet climbed from 3.9% to 4.49%. Neither movement is enough to consider the market turning significantly, but the increasing rejections came without significant volume increases, an indication the markets may be more sensitive to demand side changes than the oversupplied California markets.

The Freightos Baltic Exchange rates that measure average spot rates for shipping 40-foot containers did not increase from China to the North American west coast this week, indicating there are no surging volumes piling on the water at the moment. With an 18-to-21-day journey needed to travel from China to L.A. signs are pointing to a softer month for freight as Memorial Day approaches.

Image sourced from Pixabay