Redwood Report: Market Intel Week of May 6, 2024

This Week’s Big Story: Will April Showers Bring May Capacity Issues? 

With April behind us, we’re nearing the end of the traditionally soft stretch of volume that lasts from February through the first two weeks of May. Looking at the Cass Freight Shipment Index, we’d have to go back to 2011 to see a May that didn’t show an increase in freight volumes over April. We anticipate that this trend will continue this year — and that increased demand is meeting a market with significantly less capacity than last year.

General Freight Long-Distance Truckload employment, All Employees – Truck Transportation, Carrier Authorities, Truck Counts of publicly traded truckload companies — name the indicator, and they show year-over-year (YoY) declines, some of them significantly. All this is leading up to our first viewable volatility event since the start of the new year, with the Commercial Vehicle Safety Alliance’s (CVSA) International Roadcheck scheduled for May 14-16. During Roadcheck, we expect to see owner-operators stay home. That means a significant amount of capacity will exit the market Tuesday through Thursday of that week — challenging every routing guide in the market, as well as breaking the banks of freight brokers who lack the excess revenue needed to cover significant cost increases without incurring heavy losses.

In May 2019, which was a similar market, Roadcheck increased the DAT Load-to-Truck Ratio by 53% in one week, with 28 states tightening by a full point or more. In particular, Roadcheck impacts heavy owner-operator markets in the Mid-South, Texas, and the Southeast — but the impact is truly felt everywhere. Opportunistic carriers are literally counting down the days until we reach May 14, when they’ll be able to post their equipment for absurd rates and say no to anything that doesn’t meet their demands. We’ve seen a decline in contract rates, as DAT Contract rates for April — $1.99 linehaul a mile —mark the first time contract rates have fallen below $2 a mile since August 2020. We’ve also seen spot rates fall, with April DAT Spot rates at $1.53 linehaul — the lowest we’ve seen since May 2020. Given that situation, the carriers who’ve been hit hardest by these declines are unlikely to hear any pleas for negotiation.

This doesn’t mean a market flip is coming. Overcapacity remains the story against current levels of demand, and demand is unlikely to take a sharp upturn. So capacity will continue to appear abundant, though there are more and more signs that we’re deep in the correction, complete with daily headlines about mid-sized legacy trucking companies shutting down.

As we’ve said before, supply-driven market changes are slow and take the stairs rather than the elevator. But the back-to-back events of Roadcheck and the Memorial Day holiday will challenge brokers and shippers alike in a way we haven’t seen since the Polar Vortex the weekend prior to the Martin Luther King Jr. Holiday on January 15. In the aftermath of that event, the Outbound Tender Rejection Index (OTRI) rose to 5.4% and spot rates shot up by 13% — leaving shippers wondering if the market was facing lasting changes. We’re particularly interested to watch the spot market, which is expected to see a planned increase in API rates for the first time since the Christmas/New Year season, as brokers attempt to protect themselves from unnecessary losses. While it appears that supply continues to be above demand levels, there have still been roughly four additional months of capacity removal since that event. So we can comfortably predict a large difficulty in moving freight through Roadcheck and subsequently Memorial Day, though to a lesser extent.

In regional trends, most markets remain wide open for capacity. The annual beginning of produce season has started quietly, with inflation continuing to drive down consumers’ buying behavior. And we’re fully in Mother’s Day season, with flowers moving out of Southern Florida markets and the Southeast seeing a huge push of spot load postings for reefer freight out of Savannah, Georgia.

Keep reading to learn what’s going on with Economic Indicators, Demand, Capacity and Markets this week. And don’t forget to watch the weekly Redwood Rundown, showcasing insights from our resident expert, EVP of Procurement, Christopher Thornycroft:

This Week’s Economic Indicators 

The first-quarter US Gross Domestic Product (GDP) was reported at +1.6%, indicating a slower-growing economy in Q1. Real Personal Consumption Expenditures rose by 3% YoY, accelerating over February’s +2.3% YoY. Meanwhile, interest rates remain stuck at high levels (5.25%-5.5%).

Demand Trends for this Week 

The Outbound Tender Volume Index (OTVI) is at 11,200 and continues to show about +8% growth YoY. More private fleets are continuing to absorb freight before it can reach the for-hire sector.

The IOTI (Inbound Ocean TEU’s Volume Index) has dropped to 1467. While significantly more import volume is expected YoY, this does not look like a surge of freight that would overwhelm current networks.

The Outbound Tender Rejection Index (OTRI) has fallen to 3.19%, with spot rates still $.46 less than contract rates. A 3.19% OTRI is larger than last year’s 3.05%, but not significantly so.

New Privately Owned Housing Starts fell -13% in March, as interest rates remain high.

The April Purchasing Managers' Index (PMI), which indicates the prevailing direction of economic trends in the manufacturing sector, is down -1.1%, reaching 49.2%. This demonstrates contraction in manufacturing; we ended 16 consecutive months of contraction in March. Manufacturing New Orders are down -2.3%, to 49.1%, and Customers’ Inventories have grown by 3.8%, to 47.8.

Capacity Trends for this Week 

The number of total trucking authorities continues to fall, reaching 349,812. But reports of mid-sized fleets shutting down are even more relevant.

The March Long-Distance Truckload Employment number rose, though total truck employment fell by -300 jobs. Given the anecdotal reports of carriers shutting down, it’s hard to see employment truly rising. Despite some gains in March, Long-Distance Truckload Employment remains negative YoY for the sixth consecutive month.

Regional Market Trends for this Week 

As mentioned earlier, we’re witnessing a push of spot load postings for reefer freight out of Savannah, Georgia. It’s the largest reefer volume market to see high tender rejections, at 9.73%. While produce markets are starting slow, this is one instance of pressure on capacity — as is the explosion of broker load postings in Atlanta.

The upcoming impact of CVSA’s Roadcheck will be felt disproportionately in Texas, though all markets will experience some effects.

Los Angeles is expecting a one-week cool-off of imports this week, before heating back up next week. Southern California will be slightly easier to procure capacity from this week, before Roadcheck destroys excess capacity.

An Update on the Port of Baltimore

The first container ship has made it through the Port of Baltimore, following the collapse of the Francis Scott Key Bridge on March 26. A 35-foot channel is open, and there are plans to open a 50-foot channel that would allow two-way traffic by the end of May.

Top 3 Charts for the Week

Capacity Remains a Concern

Whatever indictor you’re using — including the total number of carrier authorities — capacity continues to tighten.

The OTVI Stays Strong

The Outbound Tender Volume Index (OTVI) remains strong, reflecting +8% growth YoY.

Rates Are at Historic Lows

Contract rates have fallen below $2 a mile for the first time since August 2020. Spot rates are at their lowest since May 2020.

Get Up to Speed with Weekly Market Intel

What’s going on this week in the US logistics market? Follow the Redwood LinkedIn page to watch Christopher Thornycroft’s insightful Redwood Rundown video. You can also read our insights blog to learn about industry trends and gain intel, including the weekly Redwood Report!