Chart of the week: Outbound Tender Reject Index, National Truckload Index (scheduled transport only) – US SONAR: OTRI.USA, NTIL.USA
The national Outbound Tender Reject Index (OTRI), the rate at which freight carriers reject customer requests to move their freight, rose above 10% during the Christmas holidays for the first time since April 2022. Spot rates (excluding estimated fuel costs) also peaked almost 10% higher than in 2023.
While this is further evidence that enough capacity has come out of the market to make things noticeably more uncomfortable for shippers, from a transportation management perspective it could be much worse.
The truckload market can generally be measured by the peaks and valleys when looking at tender rejection rates. Seasonal fluctuations drive the market, but seasonality has proven to be a challenge since the pandemic due to extreme under- and over-supply of capacity.
As the truckload market emerges from one of its longest periods of extreme oversupply, seasonal peaks are becoming increasingly apparent, with Christmas being the highest.
Last Christmas, OTRI topped out at 5.6%, a figure indicative of a relatively easy transportation sourcing environment. This means shippers would struggle to find a truck for one in 18 loads.
During the pandemic years, the OTRI hovered above 20% for almost 18 months. This means that transport managers have to deal with purchasing problems for approximately one in five loads. That’s quite a bit of extra work.
Although the current market is still far from the levels of two years ago, it continues to move away from the easiest sourcing environments and becomes more erratic. Increasing volatility can be a trickier part, as shippers may prepare for seasonal fluctuations but still have difficulty estimating their magnitude.
Shippers are implementing strategies that limit their exposure to increasing volatility in the transportation market.
Increasing lead times, the amount of time between the initial request and the requested pickup date, has been an ongoing trend, even though the market has been relatively loose. Shippers warn carriers on average half a day longer than in 2019.
Intermodal has returned to favor with the shipping community, with domestic-sized containers (ORAILDOML) averaging more than 10% higher year-over-year last December. International containers (ORAILINTL) remain on trains and move inland more often, which has also taken pressure off truck capacity on the West Coast since this summer.
Inventory management practices have evolved, largely eliminating the distance between warehouses and consumers. In the weeks leading up to Christmas, medium-haul (MOTVI) freights, which traveled 400 to 700 kilometers, fell by 8% year-on-year, while local (COTVI) freights, which traveled less than 100 miles, rose by 6%.
A combination of just-in-time in downstream warehouses and just-in-time in upstream warehouses has become increasingly common as supply chains have endured an onslaught of increasing geopolitical risks since 2020.
It is challenging and time-consuming to move production facilities and resources, but it is easy and relatively cheap to store goods in remote locations outside city centers.
Despite all these mitigating factors, the trucking market has become more responsive. This is due to the fact that all these strategies, apart from the lead time, remove demand from the market.
An extreme shortage of demand relative to the supply of capacity has led to record carrier outflows, leaving approximately 41,000 fewer carriers as of July 2022, according to Carrier Details’ analysis of Federal Motor Carrier Safety Administration data.
If shippers had purely reverted to a pre-COVID-19 supply chain management strategy, the holiday truckload market would have been in chaos. Many of these strategies only make the market transition to a tighter state more manageable, which is a good thing for everyone. With capacity still shrinking at record levels, which has now become endless economic uncertainty and geopolitical instability, supply chain and transportation managers will have their work cut out for them in 2025.
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