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USA LOGISTICS MARKET ANALYSIS 11/28/2021


National rejection rates fell unexpectedly heading into the holiday last week, but that is largely due to the majority of the freight being scheduled for pick up this week. National lead times increased to their highest levels since last Christmas, indicating shippers had largely given up on trying to move anything before the break. Shippers should continue to manage their lead times this week as many drivers come back on the road from their domiciled locations. It will take a little time for the drivers and their trucks to get back into position. Loads moving off the West Coast should garner the most attention as this is the area of the country with the widest spacing between origin and destination points. Shippers will only have three full weeks to move and position goods without a holiday disruption, but capacity appears to be more attainable than it was around Labor Day.


SONAR Ticker: OTRI.USA, OTLT.USA


Trucking capacity did not tighten as significantly as expected last week thanks in large part to diminishing demand. Truckload tender volumes only increased about 4% leading into Thanksgiving, compared to 7% in 2020. Most of this freight was scheduled to move this week as well, which helped keep national rejection rates from spiking significantly in most places outside of Southern California. Rejection rates quickly recovered out of the Ontario market, however, indicating many carriers are anticipating a quick return to service to start the week. Most signs point to a much slower spot market compared to last year, when the OTVI hit an all-time high around 17,000. Rejection rates falling back below 20% supports the idea that this peak season may not be the most active time of the year. While it is normal to see demand ease through December, it is not typical to see rejection rates fall significantly.


SONAR Ticker: OTVI.USA Seasonality View


In recent weeks, I used SONAR data to show how domestic intermodal volume has been rising, likely due to improvements in railway fluidity. Nevertheless, Surface Transportation Board Chairman Marty Oberman wants Norfolk Southern to explain how it intends to improve service levels as shippers’ complaints continue. As the railways continue to look for ways to improve intermodal service, they have been less willing to accept intermodal spot loads, instead raising intermodal spot rates to protect capacity for shippers moving loads under contract.


The SONAR chart below shows door-to-door intermodal spot rates to move 53’ containers, including fuel surcharges, in the densest domestic intermodal lanes, and their respective month-over-month changes. In the past month, intermodal spot rates are up in most lanes, with double-digit increases in the Chicago to Atlanta and the Chambersburg/Harrisburg to Chicago lanes. The 19% increase in the intermodal spot rate from Chicago to Atlanta in the past month seemed to reflect “pricing to the market” and brings the intermodal spot rate to $3.67/mile, including fuel surcharges; that is only 9% below the average dry van spot rate shown in the FreightWaves TRAC/Market Dashboard tool. That single-digit discount may not be enough to entice many shippers to use intermodal in the lane.


SONAR: Tree map of door-to-door intermodal spot rates to move 53’ containers.


As we approach the end of 2021, we can expect that vessel congestion at major U.S. ports will persist and continue to put even more pressure on an ocean container industry that is already stretched incredibly thin. Even though the vessel congestion still may worsen, we are likely approaching the worst of conditions here in the next two to three weeks. Once these volumes truly miss their delivery deadlines and have no chance whatsoever of making it on the shelves for the 2021 holiday season, there will likely be a huge surge in containers that no longer have the same urgency to get delivered that they once had. If customers begin canceling orders in large volumes, or the products in these containers simply miss their shelf life, this could create a different form of congestion that could become very problematic for a port’s throughput capacity. In order for international containers to have the opportunity to be offloaded from the vessel and into the port, there has to be space available for the incoming containers. So, if containers are not moved from ports to their end destination, then there could be an additional strain on the supply side that may keep rates elevated until the backlog works its way through the system. For these reasons, you can expect upward pressure to continue on rates for all inland and surface-side transportation. However, for ocean container rates, it is important to note that there is actually growing downward pressure on major import tradelines, especially from China. After peak volumes were reached in the latter half of September, there has been a steady decline in TEU volumes. In fact, negative year-over-year (y/y) changes have been reported for the last 5-7 weeks. Currently, SONAR’s Inbound Ocean Volumes Index from China to the United States is forecasting that, in the next 14 days, volumes will be reporting a 25-30% y/y decline in daily TEU volumes leaving Chinese ports bound for the U.S.


SONAR Tickers: IOTI.CHNUSA, IOTIY.CHNUSA


Weekly initial jobless claims plunged to 199,000 claims, the lowest level since 1969. The historic low for claims is promising for consumer conditions and consumer spending during the holiday season. Claims will likely bounce back to the mid-200,000 mark in the coming weeks. Consumer spending increased 1.3% and even showed an overwhelming increase despite factoring in inflationary pressure, which is at a 31-year high. The consumer activity will continue to feed into freight volumes during peak season. Durable goods orders eased in the recent advanced release, down 0.5%. Easing is expected; however, there is still a robust amount of strength upstream, but commodity backlogs and employment shortages will create significant headwinds.


The unemployment rate, ADP employment report and the Institute for Supply Management’s Purchasing Managers Index (PMI) will get updated in the coming week. More information around consumer conditions will give more clarity on how long this heightened consumer demand can persist. The PMI will give insight to upstream momentum, SONAR’s flatbed Outbound Tender Rejection Index remains elevated and hints towards substantial activity for both manufacturing and construction for the remainder of 2021.


SONAR Ticker: ISM.PMI, FORTI.USA

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