If you’ve been following the OTVI (Outbound Tender Volume Index) for the last few weeks, you’ve seen consistent growth. YoY volume data shows a 50% increase from 2019 and a 58% increase from 2018. A constant stream of record setting numbers, 15,830 at the end of August, indicates that the freight market is strong in the face of economic uncertainty.
This trend seems to fly in the face of consumer spending warning signs. Since the additional $600 dollar a week unemployment payments have expired, with no haste in negotiating an extension in Washington, spending among those receiving these benefits is screeching to a halt. While increased spending amongst employed people is compensating for lack of additional benefits, overall consumer spending is up 1.4% according to Bank of America. Either way, the trucking market is up.
Tom Wadewitz, Senior transportation analyst at UBS, suggests that the strength of the trucking industry will continue into 2021 due to a shift in sales models since the pandemic began. As SwanLeap CEO Brad Hollister has noted, “Businesses with supply chains that ship to stores in order to sell their product have suddenly had to become online retailers.” This means inventory isn’t moving from manufacturers to stores. Distribution is now being handled by carriers.
These market conditions bring up some interesting points regarding carrier contracts. There seems to be delay on the part of carriers to commit to particular networks amidst soaring rates. It is becoming difficult to hold carriers accountable, much less receive the service expected at the rates promised. This is because carriers simply don’t know what the market will do, making them reluctant to commit.
Regionally in the US, Miami, Cleveland, and Elizabeth, NJ have seen the largest gains while Laredo, TX, Ontario, CA and Savannah, GA are seeing decline. Still, carrier rejections, even for contracted freight, are significant with all the market uncertainty and the rise in demand for capacity. The OTRI (Outbound Tender Regional Index) reflects this with a 1% rise as of August 29, bringing the total increase to 24.97%.
Carriers really do have the negotiating power here, with data suggesting that 1 out of every 4 loads is rejected. Carriers are poised to renegotiate contracts at higher rates in order to reduce the level of rejections which is what happened the last time the OTRI reached this level. 2018 saw a capacity increase that should have lasted much longer, but the pandemic has accelerated the demand for truckers and curtailed service-related spending by carriers. The opportunity for shippers is even greater under current market conditions. Rather than relying on contracted rates, shippers should take advantage of a transportation marketplace that enables shopping the spot market alongside contracted rates. Don’t succumb to the mercy of carriers when you could proactively use a TMS that uses AI to drive 20% savings.