Demand is returning to trucking, and freight volume is on the up and up. Read on for the rundown and find out why the next few months are looking good.
Demand seems to be returning to the trucking market, based on data retrieved from FreightWaves’ Outbound Tender Volume Index (OTVI), which measures the volume of truckload requests in the North American freight market.
In a nutshell - they account for false signals, ghost loads, and duplicate postings to make sure their data is as accurate as possible. The data, in other words, is pretty good – and they’re not afraid to remind you of it.
So, the OTVI is up 12% compared to the same date in 2020 and up 11% from the same date in 2019 (pre-pandemic).
This positive trend, if it continues to show progress, marks that the worst is over for the U.S. goods economy.
Companies are unlikely to feel the positive impact just yet, but things are looking up
Despite the greater volume of freight, truckload carriers are still unlikely to see any difference just yet.
FreightWaves Outbound Tender Rejection Index (OTRI) shows a tender rejection rate of 3.76% across the industry - a low point indicating that trucking companies are accepting loads indiscriminately. No rejection of freight is a sign that companies are working harder to keep their trucks on the road.
According to FreightWaves, freight rejection should trend above 8% for carriers to start feeling the optimistic effects of the freight market’s direction.
Demand is growing
Let's put those figures into perspective as indications of supply and demand market forces.
The demand side of freight is measured by the OTVI - the OTVI increases when the goods economy grows. Right now, demand is up. Consumers are purchasing more products, retailers are restocking, more goods need moving. That's good.
Supply, on the other hand, is reflected in the OTRI. Supply is all about capacity - the dispatchable trucking and intermodal assets in the market. Capacity increases when new drivers enter into the industry.
The pandemic saw goods purchases spike. Suddenly, there was a lot of freight to move, and the industry needed more truck drivers.
New truck drivers flooded into the industry to meet the increased volume demand.
Then, demand fell, resulting in an overcapacity in the market - causing a dip in both spot and contract rates per mile. In other words: there are more trucks competing for and chasing the truckload volume in the market.
If the high OTVI, low OTRI trend continues, it will indicate that the market is at overcapacity.
Spot rates may increase in the next few months
Despite the increased volume, the spot rates have dropped a further 10% in the first few weeks of January. While not as low as the rates in November 2022, the downward trend isn’t making carriers hopeful right now.
However, the overcapacity should tighten soon, and rates should look up in the next few months. Stronger volumes are expected from the produce markets and the spring shipping season, and the future is looking bright.
Hold out a little longer, and it’s likely you’ll see the market return to a healthier state in no time.
