Weekly Market Update – August 31, 2018 - Unofficial end of summer and freight doldrums?

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Freight markets had been relatively soft over the past month as national rejection rates and volume had continued to stay relatively unchanged…until now. As we head towards Labor Day weekend and the end of August, we expect further increases in volume as well as rejections. But this jump still stands out. The sharp increase in volume as seen on the outbound tender volume index (OTVI) reminds me of the time in college where I woke up at 3 PM the day before my term paper was due and realized I had only written a paragraph. Shippers appear to be in the same head-space before the long weekend.

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SONAR OUTBOUND TENDER VOLUME INDEX SHOWING A LARGE INCREASE IN THE NATION'S SHIPPING VOLUME OVER THE LAST 2 DAYS. (CHART: FREIGHTWAVES SONAR)

The outbound tender volume index is a measure of accepted load volume in the country. It is a good indicator of the amount of shipping activity. Surges in the OTVI can indicate the potential for stressed trucking networks as national volumes (OTVI.USA) increased from 9,982 to 10,243, a 2.6% increase in national freight volume in 2 days. The last time a jump like this occurred was prior to Memorial Day when volume jumped 2.1% on its way to the summer peak in late June.

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CHICAGO OUTBOUND VOLUME DECREASING AND TENDER REJECTIONS INCREASING OVER THE PAST 2 DAYS. (CHART: FREIGHTWAVES SONAR)

Not every region of the country saw increases in volume. Major markets like Chicago dropped 5.5% over the past two days. Ironically, tender rejections increased from 24.94% to 26.73% over the same time. Most of this increase is probably caused by the impending holiday but considering the additional volume that is consuming capacity in other markets, the Chicago area will have less trucks available than it has had with stable market conditions.

Chicago has been struggling more than other large markets to maintain capacity over the past month due to a heavy intermodal presence. Outbound tender rejections have been elevated compared to the rest of the country without any significant volume increases. The market appears to be more exposed to capacity deficiencies than other large areas.

In other large markets there are mixed results. Atlanta had a huge spike in tender rejections over the past few days, increasing over 200 bps.  Unlike Chicago, volume increased significantly, rising almost 7% in the same time. Dallas had both volume and tender rejections falling in the same time.

It is not unusual to see short bouts of increased volume this time of year, so it is too early to say we are seeing the turning point in the freight market. The most significant jump in volume in the last 3 months is still worth noting as we head into September, which tends to be a hit or miss month in terms of volume. 

Volume should subside over the next few days as the holiday takes effect. In that same time, rejections should increase due to less capacity availability. We should get a better understanding of the market in the second week of September as we get separation from the vacation period.  Adding to that, there is also some tropical activity in the Atlantic to watch.  

Weather can be a major factor in freight markets in September as the climatological peak of the Atlantic hurricane season is September 10th. With no named storms in the month of August, a feat that has only occurred 8 times since 1966 according to the Weather Channel, the odds of September following suit are slim to none. There are forecasts that have the Atlantic basin becoming much more active in the next few weeks.

Another factor to consider in the coming weeks is the economy is still humming. The housing sector is about the only area reporting some level of disappointment as increasing costs are starting to erode demand. Most other economic indicators are still reporting positive growth.

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