The Outbound Tender Volume Index is calculated and presented on a seven-day moving average basis. As such, OTVI becomes distorted in the week following national holidays. For that reason, weekly comparisons don’t glean much meaningful insight at the current time. We can, however, compare the depth of this year’s trough to that of previous years. This year, the decline was slightly more shallow than the previous two years, which could suggest that volumes might snap back strongly when the index normalizes.
The truckload market has been driven by the consumer in 2020. This holiday season has been remarkably different from years past. On Black Friday, the biggest in-store shopping holiday of the year, foot traffic was down 52% year-over-year, according to Sensormatic Solutions. On the other hand, online demand surged to all-time spending highs for both Black Friday and Cyber Monday.
On Thursday, the U.S. lost more than 2,800 people to COVID-19. The U.S. is also experiencing record-high hospitalizations and new daily infections. Indeed, multiple vaccines are within weeks of implementation, but distribution will be limited initially. And pharmaceutical companies producing the vaccines are already noting supply chain troubles and delaying their inoculation projections.
The high COVID infection rates and scarcity of vaccine availability imply the distorted consumer behavior that has driven the freight markets will likely continue for another few months at least — meaning goods spending should be elevated and services spending depressed. The accelerated rollout of multiple vaccines may normalize those patterns sooner rather than later, but that mix shift should not begin in earnest until Q2 2021. That implies sustained, monthslong shifts in retail supply chains that de-emphasize truckload moves from distribution centers to brick-and-mortar locations and place a new importance on facility efficiency and throughput at distribution and fulfillment centers, wherever those may be located in the supply chain.
In the heat of peak holiday season, our thesis is largely the same: relatively tight capacity, strong volumes and positive cyclicality. The low inventory-to-sales ratio, strong consumer sentiment and spending, lack of service-based spending options, and acceleration of e-commerce growth all bolster our belief.
On a positive note, 12 of the 15 major freight markets that we monitor as a broad, representative benchmark were positive on a week-over-week basis. We said last week that we expected a rebound in this ratio and we got one. The ratio returned this week to the stronger levels it has become accustomed to in recent months as the freight market rallies. The markets with the largest gains this week in OTVI.USA were Miami (19.46%), Newark, New Jersey (14.74%), and Laredo, Texas (12.29%). The markets with the largest declines this week in OTVI.USA were Seattle (-1.62%), Ontario, California (-1.36%), and Houston (-0.10%).
Tender rejections remain elevated
On Black Friday, the Outbound Tender Reject Index (OTRI) notched another all-time high for the series at 28.46%. Since then, OTRI has meaningfully declined by nearly 3% but remains extremely high at 25.82%.
Rejection rates immediately after the holiday weekend are following a similar pattern to 2019, as rejection rates a year ago fell ~60 bps entering December before climbing higher through Christmas. In 2018, rejection rates following Thanksgiving collapsed nearly 200 bps and continued to slide through early December before turning up around two weeks before Christmas.
Relative capacity tightness continues to plague the reefer market as carriers are rejecting more than four in 10 electronic tenders. Reefer conditions have eased on a national level as rejection rates have fallen 181 bps after peaking on Nov. 22 at 49.17%, which is more than 1,900 bps higher than the initial surge in late March.
As of Monday, 20 vessels were anchored off the coast of Los Angeles and Long Beach, with an additional 16 expected by Friday. The OCEAN Alliance announced that vessel capacity from China to the U.S. West Coast, specifically to Los Angeles, will be increased by 17% through the end of December. Additionally, the 2M alliance (Maersk and MSC) along with ZIM will increase vessel capacity by 13% from China to the East Coast, with port calls in Houston, Mobile, Alabama, and Tampa, Florida. The increased throughput at the ports will keep pressure on truckload capacity for a prolonged period, likely keeping rejection rates elevated.
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