MARKET UPDATE

Slide 1
ODYSSEY'S NORTH AMERICAN
MARKET UPDATE

ODYSSEY NETWORK UPDATE

 

Note: All metrics are inclusive of TL/IM and Bulk only
  • One of the biggest stories in the latter half of Q1 and into Q2 has been the state of freight transportation capacity
    • Based on the latest numbers released by the Bureau of Labor Statistics, demand for freight beyond the truckload spot market did not collapse in April. The employment situation highlighted that new hires were needed to haul freight that continues to land at US ports and leave factories and warehouses amid ongoing labor shortages and supply chain disruption
    • The increase exceeded expectations that were dampened by flagging freight demand in the truckload spot market. However, shippers have been moving freight to the now higher-priced contract market to get capacity commitments from trucking partners. The strong jump in real, not-seasonally-adjusted employment numbers may be one indicator of that shift of freight back to contract carriers
    • Some of the owner-operators that entered the market in 2021 may be returning to contract carriers. Lower spot rates usually lead drivers with smaller companies to seek employment with larger firms

Shipper Actions

In today’s competitive environment, becoming a preferred shipper to carriers can help improve attaining sufficient capacity. Things that shippers offer that help reach this status can include:

Accuracy:

  • Forecast for the end of month/end of quarter – plan for surges in your needs to assure coverage
  • Develop order lead time – at least 5 days in advance. ask carriers for “best case” options

Specificity:

  • Request delivery windows from customers…often 8 a.m. deliveries are requested when product really isn’t need until much later. A window of 8-10 a.m. may have a better chance of coverage.
  • Spread delivery times our across the day
  • Assess what your customers really need. Make sure that customer delivery requirements are up to date and accurate
  • Don’t over-require equipment/assessorials that aren’t needed

Flexibility:

  • Offer flexible load times
  • Explore/ be open to mode options including intermodal

Driver-friendliness:

  • Load/unload within the normal 2 hours-time is money to drivers
  • Provide creature comforts (clean restrooms, rest areas, free Wi-Fi, a cup of coffee, etc.)

Consistency:

  • Offer consistent volume that carriers can plan against
  • Reduce order changes – a new date may put coverage at risk

Efficiency:

  • Maximize payload on trucks
  • Utilize trailer drop yards at high volume origins when possible
  • Prioritize loading/unloading trucks quickly at facilities

Promptness:

  • Pay carriers within their contracted freight terms- cash flow is vital to carriers

ECONOMIC UPDATE

GDP

Annual GDP Growth (Percent Change)

Source: US Bureau of Economic Analysis
  • Real gross domestic product (GDP) decreased at an annual rate of 1.4 percent in the first quarter of 2022, according to the “advance” estimate released by the Bureau of Economic Analysis on April 28. In the fourth quarter, real GDP increased 6.9 percent
  • The decrease in real GDP reflected decreases in private inventory investment, exports, federal government spending, and state and local government spending, while imports, which are a subtraction in the calculation of GDP, increased. Personal consumption expenditures (PCE), nonresidential fixed investment, and residential fixed investment increased
    • The increase in PCE reflected an increase in services (led by health care) that was partly offset by a decrease in goods
    • Within goods, a decrease in nondurable goods (led by gasoline and other energy goods) was partly offset by an increase in durable goods (led by motor vehicles and parts)
    • The increase in nonresidential fixed investment reflected increases in equipment and intellectual property products
  • The price index for gross domestic purchases – BEA’s featured measure of inflation in the U.S. economy – increased 7.8 percent in the first quarter, compared with an increase of 7.0 percent in the fourth quarter
    • Excluding food and energy prices, the PCE price index increased 5.2 percent
  • GDP from manufacturing increased to $2.38 trillion in the fourth quarter of 2021 (the latest figures available and released by the BEA), up from $2.32 trillion in the third quarter of 2021

Quarterly GDP from Manufacturing (Billions of Dollars)

Source: US Bureau of Economic Analysis

Inflation

  • Over the last 12 months, the all items index increased 8.3 percent before seasonal adjustment
    • Increases in the indexes for shelter, food, airline fares, and new vehicles were the largest contributors to the seasonally adjusted all items increase
    • The food index rose 0.9 percent over the month as the food at home index rose 1.0 percent
    • The energy index declined in April after rising in recent months
    • The index for gasoline fell 6.1 percent over the month, offsetting increases in the indexes for natural gas and electricity
  • The index for all items less food and energy rose 0.6 percent in April following a 0.3-percent advance in March
    • Along with indexes for shelter, airline fares, and new vehicles, the indexes for medical care, recreation, and household furnishings and operations all increased in April
    • The indexes for apparel, communication, and used cars and trucks all declined over the month
  • The all items index increased 8.3 percent for the 12 months ending April, a smaller increase than the 8.5-percent figure for the period ending in March
    • The all items less food and energy index rose 6.2 percent over the last 12 months
    • The energy index rose 30.3 percent over the last year, and the food index increased 9.4 percent, the largest 12-month increase since the period ending April 1981

Inflation Rate (Percentage)

 

Source: US Bureau of Labor Statistics

Employment

  • Total nonfarm payroll employment increased by 428,000 in April, and the unemployment rate
  • was unchanged at 3.6 percent, the U.S. Bureau of Labor Statistics reported on May 6th
    • Job growth was widespread, led by gains in leisure and hospitality, in manufacturing, and in transportation and warehousing

Unemployment Rate (Percentage)

Source: US Bureau of Labor Statistics
  • Truck employment increased to 1.564M in April from 1.551M in March, on a seasonally adjusted basis
    • Truck employment increased to 1.547M in April from 1.533M in March, on a not-seasonally adjusted basis

U.S. Truck Employment-Not Seasonally Adjusted (Thousands of Persons)

  • Both the labor force participation rate, at 62.2 percent, and the employment-population ratio, at 60.0 percent, were little changed over the month
  • However, these measures are each 1.2 percentage points below their February 2020 values

Labor Force Participation Rate (Percentage)

Source: US Bureau of Labor Statistics

New Orders

  • New orders for manufactured goods in March, up twenty-two of the last twenty-three months, increased $11.8 billion or 2.2 percent to $557.3 billion, the U.S. Census Bureau reported on May 3
    • This followed a 0.1 percent February increase
  • Shipments, also up twenty-two of the last twenty-three months, increased $12.6 billion or 2.3 percent to $556.4 billion
    • This followed a 1.1 percent February increase
  • Unfilled orders, up fourteen consecutive months, increased $5.5 billion or 0.4 percent to $1,294.8 billion
    • This followed a 0.5 percent February increase
    • The unfilled orders-to-shipments ratio was 6.72, down from 6.74 in February
  • Inventories, up twenty-one of the last twenty-two months, increased $10.4 billion or 1.3 percent to $797.6 billion
  • This followed a 0.9 percent February increase
    • The inventories-to-shipments ratio was 1.43, down from 1.45 in February

New Orders for Manufactured Goods (Percent Change)

Source: US Census Bureau
  • US orders for nondefense capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 1.2 percent in March, following an downwardly revised 2.1 percent drop in February

Nondefense Capital Goods Excluding Aircraft (Percent Change)

  • On a dollar basis, orders increased to $81.11 billion in March from $80.10 billion in February

Nondefense Capital Goods Excluding Aircraft (Millions of Dollars)

Source: US Census Bureau

Fuel

On-Highway Diesel Fuel Prices (Dollars Per Gallon)

Source: US Energy Information Administration
  • The national average price of diesel at the beginning of May increased by 48 cents from the same period in April, to $5.62 per gallon, according to the Energy Information Administration’s weekly data
  • Trucking’s main fuel now costs $2.43 – or 76 percent – more than a year ago

Purchasing Managers Index

Source: ISM Manufacturing PMI

The Purchasing Managers Index is a diffusion index summarizing economic activity in the manufacturing sector in the US. The index is based on a survey of manufacturing supply executives conducted by the Institute of Supply Management. Participants are asked to gauge activity in a number of categories like new orders, inventories, and production and these sub-indices are then combined to create the PMI. A PMI above 50 designates an overall expansion of the manufacturing economy whereas a PMI below 50 signifies a shrinking of the manufacturing economy.

  • The April Manufacturing PMI registered 55.4 percent, a decrease of 1.7 percentage points from the March reading of 57.1 percent; this is the lowest reading since July 2020 (53.9 percent)
  • This figure indicates expansion in the overall economy for the 23rd month in a row after a contraction in April and May 2020
  • The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment
  • In April, progress slowed in solving labor shortage problems at all tiers of the supply chain

Logistics Managers’ Index

Transportation Capacity

Source: CSCMP LMI
  • The Transportation Capacity Index registered at 56.9 in April 2022
    • This constitutes a substantial jump of 11.2 percentage points from the March reading of 45.7 and moves the Transportation Capacity Index over the critical 50.0 threshold, into expansion territory
    • This is the first month with an expansion since May 2020
    • The index is even higher for Upstream firms at 59.1, while the Downstream average is only 53.8
    • The trendline now takes a marked U-shape, as capacity increases in April 2022 begin to resemble growth rates during the early stages of lockdown in April 2020

Transportation Prices

Source: CSCMP LMI
  • The Transportation Prices Index registered at 73.9 in April 2022
    • This corresponds to a decrease of 15.8 points from the March reading of 89.7
    • This is the second largest drop in Transportation Prices in the history of the index
      • Only the 27.9-point decrease in April 2020 – the month the U.S. shut down due to COVID – was greater
  • While the index remains above 50, indicating that prices are still increasing, the intensity is much lower than anytime in the past 1.5 years
  • Further, the decrease in price pressure is across the supply chains, with upstream price index at 73.8 and downstream price index at 75.4

TRANSPORTATION UPDATE

Cass Truckload Index

Source: Cass

Source: Cass

The Cass Truckload Linehaul Index is a measure of market fluctuations in per-mile truckload linehaul rates, independent of additional cost components such as fuel and accessorials. Calculation methodology for the index was developed by the University of Tennessee’s Global Supply Chain Institute in collaboration with Cass.

  • The Cass Truckload Linehaul Index rose 14.2 percent year-over-year in March to 163.4 after rising 12.7 percent year-over-year in February to 158.0
  • Cass recently refined the dataset to improve its reflection of the market, and the March increase is consistent with other contract rate sources
  • Just as the Index is catching up, the key leading indicators from the truckload spot market have fallen sharply over the past several weeks, which is expected to limit further upside in the Cass Truckload Linehaul Index
    • Normal contract timing would suggest there’s room for the Index to continue to rise for a few more months after the peak in spot rates

ATA Truck Tonnage Index

In calculating the index, 100 represents 2015. ATA’s For-Hire Truck Tonnage Index is dominated by contract freight as opposed to spot market freight.

  • American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 2.4 percent in March after rising 0.7 percent in February
    • In March, the index equaled 118.8 versus 116.1 in February
  • “It is important to note that ATA’s for-hire tonnage data is dominated by contract freight with minimal amounts of spot market loads,” said ATA Chief Economist Bob Costello. “And clearly contract freight was solid in March, witnessing the largest sequential gain since May 2020. March was also the eighth straight month-to-month improvement, with a total increase of 7.4 percent over that period. During the first quarter, the index rose 2.4 percent from the final quarter of 2021 and increased 2.6 percent from a year earlier. While there might be some recent softness in the spot market, for-hire contract freight tonnage remains solid and is only limited by lack of capacity—both drivers and equipment—at contract fleets.”
    • February’s increase was revised higher from our March 22 press release
  • Compared with March 2021, the SA index increased 3.8 percent, which was the seventh straight year-over-year gain and the largest over that period
    • In February, the index was up 3.2 percent from a year earlier
    • In 2022, year-to-date and compared with the same period in 2021, tonnage was up 2.6 percent
  • The not seasonally adjusted index, which represents the change in tonnage actually hauled by fleets before any seasonal adjustment, equaled 123.9 in March, 17.9 percent above the February level (105.1)

DAT Freight Summary

  • DAT’s van load-to-truck ratio decreased for a third consecutive month to 3.42 in April
  • National average spot and contracted rates continued to diverge with spot rates declining for a third consecutive month to $2.80 per mile (inclusive of fuel) from a high of $3.10 in January
  • Truckload replacement rate – a measure of percent change to expiring contracted rates – was at 11 percent at the end of April compared to 15 percent at the end of March

Source: DAT Freight

Source: DAT Freight
  • DAT’s average outbound dry van rates are down across all regions:

Source: DAT Freight

LTL Update

  • With the increase in shipment sizes appearing to remain a sticky factor of the LTL industry, it is fair to say that some of the truckload spillover will permanently convert to LTL, boosting overall throughput
    • That said, with DAT van-to-load ratio dropping to just south of 4 shipments per available trailer, the pressure on LTL is not the same as one observed in 2021
  • Carriers are increasingly purging palletizable freight from their networks, signaling a continuation of overall network rationalization and pricing discipline that became a prominent feature in 2021
  • There are some areas of improvement where carriers have made concerted efforts:
    • For the first time since 2018, the number of terminals increased (2.8%)

Source: Stifel & ATA
  • Active LTL capacity is at the highest level in the last decade

Source: Stifel & ATA
  • These are positive trends, but structural capacity still lags long term demand especially in light of supply chain shifts vis a vis nearshoring, increase in e-commerce, and the need to support low-latency omnichannel inventories

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ODYSSEY NETWORK UPDATE

Note: All metrics are inclusive of TL/IM and Bulk only
  • Many logistics and supply chain publications have been noting a change in the market for freight transportation, speculating that we may be observing a normalization of capacity and prices
    • Odyssey is cautious about these changes as the rate of change is quite small. Additionally, the underlying economics of operations have changed as the cost of driver retention has risen
    • The PMI noted that there is a continued, elevated levels to logistics and transportation costs that are now largely driven by inventory carrying costs as shippers are pulling forward orders in anticipation of labor-related disruptions at the ports in the summer of 2022. As these inventories are released, there will be an increase in demand for freight transportation and it remains to be seen how this will reflect in the cost of haul
    • Another source of uncertainty is the level of output and shipping from China. Depending on what unfolds in the coming months, continued shutdowns or reopening will have a material impact to demand for freight transportation
    • Odyssey is closely watching the market and related metrics and will coordinate the timing of beneficial procurement activities

Shipper Actions

In today’s competitive environment, becoming a preferred shipper to carriers can help improve attaining sufficient capacity. Things that shippers offer that help reach this status can include:

Accuracy:

  • Forecast for the end of month/end of quarter – plan for surges in your needs to assure coverage
  • Develop order lead time – at least 5 days in advance. ask carriers for “best case” options

Specificity:

  • Request delivery windows from customers…often 8 a.m. deliveries are requested when product really isn’t need until much later. A window of 8-10 a.m. may have a better chance of coverage.
  • Spread delivery times our across the day
  • Assess what your customers really need. Make sure that customer delivery requirements are up to date and accurate
  • Don’t over-require equipment/assessorials that aren’t needed

Flexibility:

  • Offer flexible load times
  • Explore/ be open to mode options including intermodal

Driver-friendliness:

  • Load/unload within the normal 2 hours-time is money to drivers
  • Provide creature comforts (clean restrooms, rest areas, free Wi-Fi, a cup of coffee, etc.)

Consistency:

  • Offer consistent volume that carriers can plan against
  • Reduce order changes – a new date may put coverage at risk

Efficiency:

  • Maximize payload on trucks
  • Utilize trailer drop yards at high volume origins when possible
  • Prioritize loading/unloading trucks quickly at facilities

Promptness:

  • Pay carriers within their contracted freight terms- cash flow is vital to carriers

ECONOMIC UPDATE

GDP

Annual GDP Growth (Percent Change)

Source: US Bureau of Economic Analysis
  • Real gross domestic product (GDP) increased at an annual rate of 6.9 percent in the fourth quarter of 2021, according to the “third” estimate released by the Bureau of Economic Analysis on March 30. In the third quarter, real GDP increased 2.3 percent. The downward revision primarily reflected downward revisions to personal consumption expenditures (PCE) and exports that were partly offset by an upward revision to private inventory investment
  • The increase in private inventory investment was led by retail and wholesale trade industries
  • The increase in exports reflected increases in both goods and services
  • The increase in exports of goods was widespread, and the leading contributors were consumer goods, foods, feeds, and beverages, as well as industrial supplies and materials
  • The decrease in federal government spending primarily reflected a decrease in defense spending on intermediate goods and services
  • The price index for gross domestic purchases – BEA’s featured measure of inflation in the U.S. economy – increased 7.0 percent in the fourth quarter
    • The PCE price index increased 6.4 percent
    • Excluding food and energy prices, the PCE price index increased 4.6 percent
  • GDP from manufacturing increased to $2.38 trillion in the fourth quarter (the latest figures available and released by the BEA), up from $2.32 trillion in the third quarter

Quarterly GDP from Manufacturing (Billions of Dollars)

Source: US Bureau of Economic Analysis

Inflation

  • Over the last 12 months, the all items index increased 7.9 percent before seasonal adjustment
    • The 12-month increase has been steadily rising and is now the largest since the period ending January 1982
    • The all items less food and energy index rose 6.4 percent, the largest 12-month change since the period ending August 1982
    • The energy index rose 25.6 percent over the last year, and the food index increased 7.9 percent, the largest 12-month increase since the period ending July 1981
  • The consumer price index for all urban consumers (CPI-U) increased 0.8 percent in February on a seasonally adjusted basis after rising 0.6 percent in January, the U.S. Bureau of Labor Statistics reported on March 10
    • Increases in the indexes for gasoline, shelter, and food were the largest contributors to the seasonally adjusted all items increase
    • The gasoline index rose 6.6 percent in February and accounted for almost a third of the all items monthly increase; other energy component indexes were mixed
    • The food index rose 1.0 percent as the food at home index rose 1.4 percent; both were the largest monthly increases since April 2020
    • The index for all items less food and energy rose 0.5 percent in February following a 0.6-percent increase the prior month

Inflation Rate (Percentage)

Source: US Bureau of Labor Statistics

Employment

  • Total nonfarm payroll employment rose by 431,000 in March, and the unemployment rate declined to 3.6 percent, the U.S. Bureau of Labor Statistics reported on April 1
  • Notable job gains continued in leisure and hospitality, professional and business services, retail trade, and manufacturing

Unemployment Rate (Percentage)

Source: US Bureau of Labor Statistics
  • Truck employment decreased to 1.551M in March from 1.556 in February, on a seasonally adjusted basis
    • Truck employment decreased to 1.539M in March from 1.545M in February, on a not-seasonally adjusted basis

U.S. Truck Employment-Not Seasonally Adjusted (Thousands of Persons)

  • The labor force participation rate, at 62.4 percent, changed little in March
  • The employment-population ratio increased by 0.2 percentage point to 60.1 percent
  • Both measures remain below their February 2020 values (63.4 percent and 61.2 percent, respectively)

Labor Force Participation Rate (Percentage)

Source: US Bureau of Labor Statistics

New Orders

  • New orders for manufactured goods in February, down following nine consecutive monthly increases, decreased $2.7 billion or 0.5 percent to $542.0 billion, the U.S. Census Bureau reported on April 4
    • This followed a 1.5 percent January increase
  • Shipments, up twenty-one of the last twenty-two months, increased $3.1 billion or 0.6 percent to $541.0 billion
    • This followed a 1.4 percent January increase
  • Unfilled orders, up thirteen consecutive months, increased $5.4 billion or 0.4 percent to $1,288.5 billion
    • This followed a 0.9 percent January increase
  • The unfilled orders-to-shipments ratio was 6.74, up from 6.72 in January
  • Inventories, up twenty of the last twenty-one months, increased $5.0 billion or 0.6 percent to $785.2 billion
    • This followed a 0.8 percent January increase
  • The inventories-to-shipments ratio was 1.45, unchanged from January

New Orders for Manufactured Goods (Percent Change)

Source: US Census Bureau
  • US orders for nondefense capital goods excluding aircraft, a closely watched proxy for business spending plans, decreased 0.3 percent in February, following an upwardly revised 1.3 percent gain in January, and missing market expectations of a 0.5 percent rise

Nondefense Capital Goods Excluding Aircraft (Millions of Dollars

Source: US Census Bureau
  • On a dollar basis, orders decreased to $80.10 billion in February from $80.29 billion in January

Nondefense Capital Goods Excluding Aircraft (Millions of Dollars

Source: US Census Bureau

On-Highway Diesel Fuel Prices (Dollars Per Gallon)

 

Source: US Energy Information Administration
  • The national average price of diesel at the beginning of April increased by 29 cents from the same period in March, to $5.14 per gallon, according to the Energy Information Administration’s weekly data
  • Trucking’s main fuel now costs $2 or 64 percent more than a year ago

Purchasing Managers Index

The purchasing managers index is a diffusion index summarizing economic activity in the manufacturing sector in the US. The index is based on a survey of manufacturing supply executives conducted by the Institute of Supply Management. Participants are asked to gauge activity in a number of categories like new orders, inventories, and production and these sub-indices are then combined to create the PMI. A PMI above 50 designate an overall expansion of the manufacturing economy whereas a PMI below 50 signifies a shrinking of the manufacturing economy.

  • The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment. The March manufacturing PMI registered 57.1 percent, a decrease of 1.5 percentage points from the February reading of 58.6 percent
    • This figure indicates expansion in the overall economy for the 22nd month in a row after a contraction in April and May 2020. This is the lowest reading since September 2020 (55.4 percent)
  • Progress was made to solve the labor shortage problems at all tiers of the supply chain, which will result in improved factory throughput and supplier deliveries
  • ISM panelists reported lower rates of quits and early retirements compared to previous months, as well as improving internal and supplier labor positions
  • March brought back increasing rates of price expansion, due primarily to instability in global energy markets

Logistics Managers’ Index

Transportation Capacity

Source: CSCMP LMI
  • The transportation capacity index registered 45.7 in March 2022
    • This constitutes a small increase (1.3) from the February reading of 44.4
    • This marks a return to the recent upward trend in transportation capacity but the index remains under the critical 50 threshold
  • The future transportation capacity index is 50.9, down (-8.1) from February’s future prediction of 59.0
    • This suggests a rate of growth that is essentially neutral – not much capacity is predicted to come online, but we are not predicted to lose any either
    • The future transportation capacity metric will be the one PMI will watch most closely in April, as it is likely to be among the first to demonstrate any concrete signs of softening in the freight market

Transportation Prices

Source: CSCMP LMI
  • The transportation prices index registered 89.7 percent in March 2022, up slightly (+0.7) from February’s reading of 89.0
  • While some signs are pointing toward a receding of freight prices, as of March they have not yet fully materialized
  • With the rates of growth and overall price observed over the last 18 months, decreasing Transportation Prices could offer some relief to businesses and consumers
    • The key is whether the potential drop in cost leads to relief, or an actual contraction. Currently, price growth is still strong​
  • The future index for transportation prices indicates a value of 78.6, which is down (-3.2) from February’s future prediction of 81.8
    • Expectations of continued transportation price increases for the next 12 months remain quite strong, with the future index well above the critical level of 50 which indicates expansion
    • The price increase expectations are slightly higher for Upstream firms (79.9) than for Downstream firms (75.0)

TRANSPORTATION UPDATE

Cass Truckload Index

Source: Cass

Source: Cass

The Cass truckload linehaul index is a measure of market fluctuations in per-mile truckload linehaul rates, independent of additional cost components such as fuel and accessorials. The calculation methodology for the index was developed by the University of Tennessee’s Global Supply Chain Institute in collaboration with Cass.

  • The Cass truckload linehaul index rose 12.6 percent year-over-year in February after an upwardly revised 12.8 percent year-over-year increase in January to 158.0
  • Cass estimates a 3 percent downward impact from longer length of haul (due to mode shift from rail to truck) on the Cass truckload linehaul index
    • Adjusting for both sets of rates – Cass and public truckload carriers – are rising in the mid-to high-teens percentages in early 2022
  • Excess miles, rising fuel surcharges, and accessorial fees are all factors that are not reflected in the Cass Truckload Linehaul Index
    • The increase in total truckload cost, depending on how these factors progress, is between the 13 percent year-over-year increase in the Cass truckload linehaul index and the 37 percent year-over-year increase in the inferred rate (which is a mix of all domestic modes)
  • Strong freight demand and significant capacity limitations are continuing to press truckload rates higher
    • As intermodal network congestion gradually eases throughout 2022, a reversal to shorter length of haul will likely add upward pressure to this index above and beyond market rate increases

ATA Truck Tonnage Index

In calculating the index, 100 represents 2015. ATA’s for-hire truck tonnage index is dominated by contract freight as opposed to spot market freight.

  • American Trucking Associations’ advanced seasonally adjusted (SA) for-hire truck tonnage index was unchanged in February after increasing 0.4 percent in January. In February, the index equaled 115.3 the same as January
  • “February was the first month that the index didn’t increase since July,” said ATA Chief Economist Bob Costello. “Despite a string of gains, the index is still off 1.8 percent from March 2020. The index is also off 4.2 percent from the all-time high in August 2019. It is important to note that ATA’s data is dominated by contract freight, not spot market. Demand for trucking freight services remains strong, but for-hire contract carriers are capacity constrained due to the driver and equipment markets. The spot market has been surging as these carriers can’t haul all of the freight they are asked to move. So the fact that the tonnage index hasn’t fully recovered is a supply problem, not a lack of demand. Other ATA data shows that for-hire carriers are operating around 7 percent fewer trucks, both company and independent contractor equipment, than prior to the pandemic.”
  • January’s increase was revised down slightly from our February 22 press release
  • Compared with February 2021, the SA index increased 2.4 percent, which was the sixth straight year-over-year gain and the largest over that period. In January, the index was up 0.9 percent from a year earlier
  • In 2022, year-to-date and compared with same period in 2021, tonnage was up 1.7 percent
  • The not seasonally adjusted index, which represents the change in tonnage actually hauled by fleets before any seasonal adjustment, equaled 104.3 in February, 4.3 percent below the January level (109)

DAT Freight Summary

  • DAT’s van load-to-truck ratio decreased to 4.57 in March after registering at 7.33 in February
  • National average spot and contracted rates began to converge in February, and the two trended inverse with average contracted and spot rates recording $3.23 and $3.03 respectively
  • Truckload replacement rate – a measure of percent change to expiring contracted rates – was at 15 percent at the end of March compared to 17 percent at the end of February

Source: DAT Freight

Source: DAT Freight

DAT’s average outbound dry van rates are down across all regions except for Southwest, where they increased, and Southeast, where they remained relatively flat:

Source: DAT Freight

LTL Update

  • With the increase in shipment sizes appearing to remain a sticky factor in the LTL industry, some of the truckload spillover may permanently convert to LTL, boosting overall throughput
    • That said, with DAT van-to-load ratio dropping to just north of 4 shipments per available trailer, the pressure on LTL is not the same as one observed in 2021
  • Carriers are increasingly purging palletizable freight from their networks, signaling a continuation of overall network rationalization and pricing discipline that became a prominent feature in 2021
  • There are some areas of improvement where carriers have made concerted efforts:
    • For the first time since 2018, the number of terminals increased (2.8%)

Source: Stifel & ATA
  • Active LTL capacity is at the highest level in the last decade

Source: Stifel & ATA
  • These are positive trends, but structural capacity still lags long term demand especially in light of supply chain shifts vis a vis nearshoring, increase in e-commerce, and the need to support low-latency omnichannel inventories

Join our monthly distribution list: 

ODYSSEY NETWORK UPDATE

Note: All metrics are inclusive of TL/IM and Bulk only
  • One of the biggest events to dominate the industry’s attention is the pace of increase in the price of fuel. The increase is largely associated with the conflict in Eastern Europe and the resultant uncertainty in oil production created by the ever-changing situation
    • Currently, there is no shortage of oil. The most recent output figures move between 75M and 78M barrels per day, and have historically been influenced by the complex economics of oil price and planned production

World Daily Oil Production (millions of barrels per day)

Source: US Energy Information Administration
  • The recent run-up in prices is an outcome of anticipatory price movements. These can be observed in the pricing-in of expectations reflected in oil futures
  • WTI crude futures traded at north of $115 per barrel and as high as $121 but have declined to $109 per barrel on March 11 and were on track for their biggest weekly drop since November, as investors weighed escalating bans on Russian oil against efforts to bring more supply to the market from other major producers

WTI Crude Futures (USD Price Per Barrel)

Source: Chicago Mercantile Exchange
  • The situation remains highly dynamic and will continue to price in sensitivity of the overall market and its response to the conflict in Ukraine
  • Odyssey clients and carriers that use the Odyssey fuel schedule in their carrier contracts can expect to see an increase of 0.5 percent in the fuel surcharge for every 10-cent increase in the cost of fuel
    • Truckload: fuel surcharge based on per mile rate
    • Less-than-Truckload: fuel surcharge based on the percentage of the base rate
    • Bulk: fuel surcharge based on a percentage of the base rate
  • Weekly movement in the price of fuel in the US may be found by tracking rates published by the US Energy Information Administration: https://www.eia.gov/petroleum/gasdiesel/
  • With inflation continuing to dominate headlines for the economy as a whole, dry van replacement rate – increase in contracted rates that are expiring – continues to hover in the mid-teens
  • Over the last 3 months, the Odyssey Client Services team has been reengineering the monthly performance meeting with the goal of standardizing our engagement across clients

Shipper Actions

In today’s competitive environment, becoming a preferred shipper to carriers can help improve attaining sufficient capacity. Things that shippers offer that help reach this status can include:

Accuracy:

  • Forecast for the end of month/end of quarter – plan for surges in your needs to assure coverage
  • Develop order lead time – at least 5 days in advance. ask carriers for “best case” options

Specificity:

  • Request delivery windows from customers…often 8 a.m. deliveries are requested when product really isn’t need until much later. A window of 8-10 a.m. may have a better chance of coverage.
  • Spread delivery times our across the day
  • Assess what your customers really need. Make sure that customer delivery requirements are up to date and accurate
    • Don’t over-require equipment/assessorials that aren’t needed

Flexibility:

  • Offer flexible load times
  • Explore/ be open to mode options including intermodal

Driver-friendliness:

  • Load/unload within the normal 2 hours-time is money to drivers
  • Provide creature comforts (clean restrooms, rest areas, free Wi-Fi, a cup of coffee, etc.)

Consistency:

  • Offer consistent volume that carriers can plan against
  • Reduce order changes – a new date may put coverage at risk

Efficiency:

  • Maximize payload on trucks
  • Utilize trailer drop yards at high volume origins when possible
  • Prioritize loading/unloading trucks quickly at facilities

Promptness:

  • Pay carriers within their contracted freight terms- cash flow is vital to carriers

 

ECONOMIC UPDATE

GDP

Annual GDP Growth (percent change

Source: US Bureau of Economic Analysis
  • Real gross domestic product (GDP) increased at an annual rate of 7.0 percent in the fourth quarter of 2021, according to the “second” estimate released by the Bureau of Economic Analysis on February 24. In the third quarter, real GDP increased 2.3 percent
  • The latest estimate is based on more complete source data than were available for the “advance” estimate issued last month
    • In the advance estimate, the increase in real GDP was 6.9 percent
    • The updated estimates primarily reflected upward revisions to nonresidential fixed investment, state and local government spending, and residential fixed investment that were partly offset by downward revisions to personal consumption expenditures (PCE)
  • Current dollar GDP increased 14.6 percent at an annual rate, or $806.2 billion, in the fourth quarter to a level of $24.01 trillion
    • In the third quarter, GDP increased 8.4 percent, or $461.3 billion
  • The price index for gross domestic purchases – BEA’s featured measure of inflation in the U.S. economy – increased 7.0 percent in the fourth quarter, an upward revision of 0.1 percentage point
    • The PCE price index increased 6.3 percent, a downward revision of 0.2 percentage point
    • Excluding food and energy prices, the PCE price index increased 5.0 percent, an upward revision of 0.1 percentage point
  • GDP from manufacturing decreased to $2.320 trillion in the third quarter (the latest figures available and released by the BEA), down from $2.329 trillion in the second quarter

Quarterly GDP from Manufacturing (billions of dollars)

Source: US Bureau of Economic Analysis
  • Over the last 12 months, the all items index increased 7.9 percent before seasonal adjustment
    • The 12-month increase has been steadily rising and is now the largest since the period ending January 1982
    • The all items less food and energy index rose 6.4 percent, the largest 12-month change since the period ending August 1982
    • The energy index rose 25.6 percent over the last year, and the food index increased 7.9 percent, the largest 12-month increase since the period ending July 1981
  • The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.8 percent in February on a seasonally adjusted basis after rising 0.6 percent in January, the U.S. Bureau of Labor Statistics reported on March 10
    • Increases in the indexes for gasoline, shelter, and food were the largest contributors to the seasonally adjusted items increase
    • The gasoline index rose 6.6 percent in February and accounted for almost a third of the all items monthly increase; other energy component indexes were mixed
    • The food index rose 1.0 percent as the food at home index rose 1.4 percent; both were the largest monthly increases since April 2020
  • The index for all items less food and energy rose 0.5 percent in February following a 0.6-percent increase the prior month

Inflation Rate (percentage)

Source: US Bureau of Labor Statistics

Employment

  • Total nonfarm payroll employment rose by 678,000 in February, and the unemployment rate edged down to 3.8 percent, the U.S. Bureau of Labor Statistics reported on March 4
  • Job growth was widespread, led by gains in leisure and hospitality, professional and business services, health care, and construction

Unemployment Rate (percentage)

Source: US Bureau of Labor Statistics
  • Truck employment increased to 1.549M in February from 1.544 in January, on a seasonally adjusted basis
    • Truck employment increased to 1.533M in February from 1.530M in January, on a not-seasonally adjusted basis

U.S. Truck employment-not seasonally adjusted (thousands of persons

  • The labor force participation rate, at 62.3 percent in February, changed little over the month
  • The employment-population ratio edged up to 59.9 percent
  • Both measures remain below their February 2020 levels (63.4 percent and 61.2 percent, respectively)

Labor Force Participation Rate (percentage)

Source: US Bureau of Labor Statistics
  • New orders for manufactured goods in January, up twenty of the last twenty-one months, increased $7.6 billion or 1.4 percent to $544.2 billion, the U.S. Census Bureau reported on March 3
    • This followed a 0.7 percent December increase
  • Shipments, also up twenty of the last twenty-one months, increased $6.2 billion or 1.2 percent to $536.9 billion
    • This followed a 0.7 percent December increase
  • Unfilled orders, up twelve consecutive months, increased $11.7 billion or 0.9 percent to $1,283.5 billion
    • This followed a 0.8 percent December increase
    • The unfilled orders-to-shipments ratio was 6.74, down from 6.80 in December
  • Inventories, up nineteen of the last twenty months, increased $5.6 billion or 0.7 percent to $779.6 billion
    • This followed a 0.4 percent December increase
    • The inventories-to-shipments ratio was 1.45, down from 1.46 in December

New Orders for Manufactured Goods (Percent Change)

Source: US Census Bureau
  • US orders for nondefense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.9 percent in January of 2022, marginally faster than a 0.4 percent gain in December of 2021

Nondefense Capital Goods Excluding Aircraft (millions of dollars

Source: US Census Bureau
  • On a dollar basis, orders increased to $80.14 billion in January from $79.31 billion in December

Nondefense Capital Goods Excluding Aircraft (millions of dollars)

Source: US Census Bureau

Fuel

On-Highway Diesel Fuel Prices (dollars per gallon)

Source: US Energy Information Administration
  • The national average price of diesel at the beginning of March increased by 90 cents from the same period in February, to $4.85 a gallon, according to the Energy Information Administration’s weekly data
  • Trucking’s main fuel now costs $1.71 or 55 percent more than a year ago

Purchasing Managers Index

Source: ISM Manufacturing PMI

The Purchasing Managers Index is a diffusion index summarizing economic activity in the manufacturing sector in the US. The index is based on a survey of manufacturing supply executives conducted by the Institute of Supply Management. Participants are asked to gauge activity in a number of categories like new orders, inventories, and production and these sub-indices are then combined to create the PMI. A PMI above 50 designates an overall expansion of the manufacturing economy whereas a PMI below 50 signifies a shrinking of the manufacturing economy.

  • The February Manufacturing PMI registered 58.6 percent, an increase of 1 percentage point from the January reading of 57.6 percent
    • This figure indicates expansion in the overall economy for the 21st month in a row after a contraction in April and May 2020
  • The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment
  • The COVID-19 omicron variant remained an impact in February; however, there were signs of relief, with recovery expected in March
  • A higher-than-normal quit rate and early retirements continued, presenting companies in every industry with an ongoing challenge to fill openings

Logistics Managers’ Index

Transportation Capacity

Source: CSCMP LMI
  • The Transportation Capacity Index registered 44.4 point in February 2022
    • This constitutes a small decrease (-0.4) from the January reading of 44.8, and breaks the recent upward trend in Transportation Capacity but the index remains under the critical 50 threshold
  • Upstream firms are not actually observing any contraction in available capacity (a first in over a year in a half), sitting right at 50.0
    • Downstream firms are seeing continued rates of contraction
  • The future Transportation Capacity Index decreased slightly from the previous reading, and it indicates 59.0 for the next year
    • Expectations of expanding transportation capacity for the next 12 months continue
    • The expectation of increases in Transportation Capacity are still stronger for upstream firms, where the future Transportation Capacity index is registering 61.6 while this index is only 55.4 for downstream firms

Transportation Prices

Source: CSCMP LMI

  • The Transportation Prices Index registered 89.0 points in February 2022
    • This corresponds to a small increase (+0.3) from the January reading of 88.7
  • The price pressure is higher for downstream firms where the index is registering 90.2
    • The data indicates very broad and very strong upward pressure on transportation prices across the supply chains
  • The future index for transportation prices indicates a value of 81.8
    • The expectations of continued transportation price increases for the next 12 months remain strong, with the future index well above the critical level of 50.0 which indicates expansion
    • The price increase expectations are slightly higher for upstream firms (index is at 83.6) than for downstream firms (index is at 80.4)

TRANSPORTATION UPDATE

Cass Truckload Index

Source: Cass

Source: Cass

The Cass Truckload Linehaul Index is a measure of market fluctuations in per-mile truckload linehaul rates, independent of additional cost components such as fuel and accessorials. The calculation methodology for the index was developed by the University of Tennessee’s Global Supply Chain Institute in collaboration with Cass.

  • The Cass Truckload Linehaul Index rose 2.2 points in January to 150.2 from 148.0 in December, up 1.5 percent month-over-month and up just 7.2 percent year-over-year, slower than the 8.0 percent increase in December
    • This data series trends below the 20 percent increases in public TL fleet per-mile rates due in part to a large increase in length of haul (LOH) resulting from rail service issues pressing longer-haul shipments onto the highways
    • Accessorial fees (not included in the index) also explain part of the difference
    • Cass estimates a 3 percent mix effect from longer LOH in January, which reduces the rate per mile even as cost per shipment rises
  • Strong freight demand and tight capacity are continuing to place upward pressure on the index
  • As intermodal network congestion gradually eases over the course of 2022, a reversal to shorter LOH will likely add upward pressure to the index above and beyond market rate increases

ATA Truck Tonnage Index

In calculating the index, 100 represents 2015. ATA’s For-Hire Truck Tonnage Index is dominated by contract freight as opposed to spot market freight.

  • American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index rose 0.6% in January after increasing 0.9 percent in December
  • “January’s gain was the sixth straight totaling 4.4 percent,” said ATA Chief Economist Bob Costello. “The index, which is dominated by contract freight with only small amounts of spot market truck freight, is off 3.9 percent from the all-time high in August 2019 and only 1.5 percent below March 2020 when the pandemic hit. In January, truck tonnage was helped by rising retail sales and factory output. While housing starts fell last month, which is another important driver of truck tonnage, it remained at high levels.”
  • Compared with January 2021, the SA index increased 1.2%, which was the fifth straight year-over-year gain
    • In December, the index was up 1.5 percent from a year earlier
    • In 2021, compared with the average in 2020, tonnage was up 0.3 percent
    • In 2020, tonnage was off 4 percent compared with 2019
  • The not seasonally adjusted index, which represents the change in tonnage hauled by the fleets before any seasonal adjustment, equaled 109.2 in January, 4.3 percent below the December level (114.1)
  • The US Bureau of Transportation Statistics Truck Tonnage Index – which closely tracks the ATA Index – recorded a similar performance increasing to 115.7 in January 2022 from 114.9 in December 2021

Truck Tonnage Index

Source: US Bureau of Transportation Statics

DAT Freight Summary

  • DAT’s van load-to-truck ratio decreased to 7.33 in February after registering at 9.34 in January
  • National average spot and contracted rates converged in February as average contracted rates increased to $3.06 from $2.98 in January
  • Truckload replacement rate – a measure of percent change to expiring contracted rates – was at 17 percent at the end of February compared to 20 percent at the end of January

Source: DAT Freight

Source: DAT Freight
  • DAT’s average outbound dry van rates saw a small increase from November to December (there was no change in SW):

Source: DAT Freight
  • LTL carriers continued to adopt strict pricing discipline and tighten their cash cycles with national and regional carriers implementing general rate increases that have ranged from 5 to 7 percent
    • This is a trend that will continue throughout 2022 as carriers – particularly public issuers – continue a heavy focus on operating ratios
  • With DAT van-to-load ratio north of 9 and TL replacement rate closing January at 20 percent, it is anticipated that LTL carriers will continue to see an increasing amount of volume and tonnage moving through their networks
  • Another anticipated trend will be temporary embargoes as the sector – like all other parts of the economy – struggles with illness-related worker absenteeism and reshuffling of labor as the labor force continues to seek new opportunities in pursuit of higher pay and better benefits
  • Construction, a primary source of job competition for freight transportation, has seen payrolls snap back quickly and growth is unlikely to abate as infrastructure spending ramps up
  • However, there are areas of improvement where carriers have made concerted efforts:
    • For the first time since 2018, the number of terminals increased (2.8%)

Source: Stifel & ATA
  • Active LTL capacity is at the highest level in the last decade

Source: Stifel & ATA
  • While these developments will not translate into lower cost of shipping LTL freight, they are indicators of expanding capacity for freight that continues to be rejected on the TL side albeit at slightly lower rates than observed over the past three months and below the 20 to 25 percent average seen in the 2020 and 2021 freight volume ramp-up

Source: FreightWaves Sonar
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