Redwood Report: Market Intel Week of May 27, 2024

This Week’s Big Story: Do Current Capacity Issues Predict the Future?

We’ve made it past the Commercial Vehicle Safety Alliance’s (CVSA) International Roadcheck and the lead-up to Memorial Day. The biggest takeaway from the past two weeks is that the freight market has revealed itself to be more sensitive to pressure on capacity than we’ve seen for all of 2024.

When the Roadcheck event on May 14-16 sent owner-operators into hiding, strong outbound markets in California, the Gulf Coast and the Southeast felt the decline in capacity immediately. In all, 24 states showed a load-to-truck ratio of 4:1 or greater. The Outbound Tender Rejection Index (OTRI) shot up to 4.82%, and spot rates gained $.11 according to the National Truckload Index Linehaul Only (NTIL).

Many shippers wisely pushed their freight out to avoid the cost increases associated with Roadcheck. The freight that was pushed into last week appears to have created at least a small backlog that has to be worked through. And, in anticipation of the Memorial Day holiday, volumes grew even more last week. Strong outbound markets reacted to this added volume with increased outbound costs.

Given that produce will only heat up more in the coming weeks, it seems like at least some pressure will continue. This will put service more at risk than it has been since the repeated weeks of capacity pressure that culminated in the polar vortex the weekend of the Martin Luther King Jr. holiday on January 15.

This week, we’ll see the repositioning of equipment that’s required following the Memorial Day holiday. This will create pain on Tuesday, and then even greater “Tuesday on a Wednesday” pain — where even less capacity is positioned for regular runs. Given this situation, we don’t expect significant relief for California, the Gulf Coast or the Southeast — except for markets like Southern Florida, where the produce boom is starting to wane. Watch for capacity issues to spread farther north, as the Southeast produce market expands into the Carolinas and beyond.

All of this has meant rising costs — not rapidly rising, and not costs that create a market flip, but costs that show an increasing rate environment. This environment has been created by a more reactive spot market, as well as contract costs that have declined year-over-year (YoY), even if holding fairly steady following the modest rate reductions on contract freight that went live in Q2. If these increased costs continue to “take the stairs” rather than the “elevator,” then this will put more pressure on routing guides that have been built on aggressive, and even below-market, rates. If those providers are unable to service this freight at even a slight profit, this will cause more freight to move via the spot market, which will become increasingly reactive. 

These are early projections and, with much of the world and the US economy in uncertain territory, a potential downturn is definitely not off the table. Such a downturn would negate the current supply-side driven market tightness. For the very short term, however, this freight market is being defined by regionalized capacity challenges. We’ll see how the market reacts to these challenges, especially farther north as seasonal volumes grow.

Read on for further insights on Demand, Capacity and Markets. 

Demand Trends for this Week 

The Outbound Tender Volume Index (OTVI) has been lifted to 11,447 thanks to spot freight. And the CLAV (Contract Load Accepted Volume) stands at 14,412, which is 5% over last year. The IOTI (Inbound Ocean TEU’s Volume Index) has started to rebound and is back over 1500, which suggests a push of freight for the end of Q2.

The Outbound Tender Rejection Index (OTRI) is at 4.82%, which is the highest we’ve seen since February 13. At 2.22%, the Intermodal OTRI is the highest it’s been since Labor Day 2023 — and, in Los Angeles, the IMLOTRI (Intermodal Outbound Tender Rejection Index) is at 3.93%, which is higher than it was at this time in 2022 or 2023. We believe this is a sign of an early peak season, as shippers look to avoid potential additional tariffs being implemented post-election.

Capacity Trends for this Week 

The number of total trucking authorities has dropped to 349,175. The market is continuing to shed a net -200 to -300 carriers per week, which is significantly slower than what was expected for this time period. Brokerage authorities are down -12.3% from January 2023.

Regional Market Trends for this Week 

Atlanta, Georgia, saw over 13,000 loads posted on the DAT on Wednesday as brokers struggled to find capacity at below-market rates. The Southeast in general has been red-hot, with Alabama, Florida, Georgia, North Carolina, South Carolina and Tennessee averaging 7.93 to 1.

California continues to be a difficult market to procure from, with the OTRI for Los Angeles reaching near 8%. The OTRI has even risen in markets like Chicago, as carriers are rejecting freight that sends them to undesirable markets.

While the past two weeks have brought rising rates even in favorable markets, this trend is expected to be fairly short-lived. Following this week’s repositioning, we expect to see a reduction in outbound Chicago costs once again, due to the amount of available capacity in that market.

Top 3 Charts for the Week

Is Capacity a Long-Term Issue?

Looking at historic supply and demand trends, only time will tell if the Memorial Day capacity crunch predicts a longer-term issue.

Carrier Exits Are Slowing Down

The market is losing 200-300 carriers per week, but that’s a slower rate of exits than expected.

Tender Rejections Are Up

The Outbound Tender Rejection Index (OTRI) shot up to 4.82%, thanks to Roadcheck and the lead-up to the holiday weekend.

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