Load rejections signal tightest market since 2018, but for how long?

The national OTRI was relatively flat in February, moving down slightly from 5.76% to 5.29%. Since February 29, national rejection rates have increased every day. As of March 20, the national OTRI was 16.24%, 972 basis points higher than the same time in 2019. On March 9 the OTRI surpassed the previous year’s value for the first time since inception in early 2018.

This tightness is far different from the 2018 scenario, however. This event is expected to be short lived in terms of trucking volumes and capacity, whereas the 2018 situation was much more long-running. In many cases of extreme volatility, violent upswings can produce even stronger downswings.

Most experts and financial institutions are uncertain about how deep the economic trough will go. Goldman Sachs forecasted a 24% decline in GDP in the second quarter of 2020, by far the most severe estimate. Whereas this may be on the low end, most forecasts are pretty grim for the economy over the next three months, meaning that freight volumes should follow suit as consumption dwindles as people are in quarantine.

There are still many unknowns, but employment levels are taking their first significant hit — the Department of Labor reporting a 30% increase in unemployment claims last week. Less people working leads to less spending, which leads to less freight moving. With less freight moving, capacity should loosen proportionately, pending some unforeseen hit to the driver population such as widespread infection.

Certain commodities, such as food and medical supplies, will remain in high demand throughout the pandemic, but other industries like automotive and non-perishable manufacturing will take an inevitable hit, leaving many trucks without enough freight to haul.

It took roughly 6-8 weeks for China to get the outbreak under control by shutting down sections of the country. The U.S. just started to implement a similar strategy over the past week or two, which would put conditions stabilizing in late April or early May.   

Volumes are still on the rise as of March 20 — the national Outbound Tender Volume Index (OTVI) having risen to an all-time high since its creation date in March of 2018 for the 10^th consecutive day. Predicting when it will fall with precision is near impossible, but the odds of it remaining on its current course for much longer get lower each day. Once it crests, the expectation will be for a similar decline as volumes regress back towards seasonal levels and eventually below them. It has taken three weeks to get to this point — volumes 27% higher than the same time last year — to say this is an anomaly would be the understatement of the year.

If volumes begin to fall on the same pace this week, we will see volumes back to early March levels by April 10. Capacity and rejection rates should quickly follow suit.     

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