Weekly Market Update: Has the freight market bottomed?

The first week of February has been remarkably stable regarding freight market volatility. The National Tender Rejection Index has only moved 14 bps higher over the past 7 days.  Volumes have fallen about 1.1% from end of month levels but have had no significant swings. The market has at least stopped falling for the moment, meaning capacity is not loosening any further with the same amount available this week versus last. With this being the slowest time of year, both economically speaking and in terms of freight volumes, does this mean the market has found its bottom?

A freight market bottom would be where capacity is as loose as it has been with heavy downward pressure on rates. With the market in a holding pattern over the past week after being on a slow decline from mid-January, there simply isn’t much further to go with a rejection rate of 7.8%. March is just a few short weeks away and the southern tier of the country will start heading back outdoors to start building houses and buying patio furniture. Store shelves will need to be stocked with seasonal inventory. This push of freight normally doesn’t begin in earnest until early to mid-March.

The Chinese New Year (CNY) began yesterday, but that will not have an impact to the freight market for a few weeks if at all. Weekly rail intermodal volumes, which are heavily tied to imported containers, have declined over 8% since peaking in early December and are roughly 9% lower than this time last year. Intermodal volumes had been trending higher throughout 2018 but appear to be softening in early 2019. This has a spillover effect to the truckload market as this means there are fewer intermodal shipments to haul.  

The Freightos Baltic Index, that measures the spot rate for shipping 40-foot containers from China to North America’s West Coast, has fallen from $2,110 to $2,051 over the past two weeks – an indication that there has not been a significant impact to shipping capacity in the maritime market. In other words, don’t expect a big shot of containers hitting the market prior to the March 1st deadline.

The Los Angeles market is still repositioning all the inbound freight it received from the previous months as outbound volumes remain elevated, averaging 10% more than last week. Shorthaul – length of haul 100-250 miles — rejection rates from the market have been on the increase over the past two weeks, climbing 213 bps. These loads are having more trouble finding capacity than any other length of haul, averaging 5.08% rejection rate compared to the market average of around 2.4%.

The fact the warehouses seem full, and maritime rates have fallen leading up to the CNY, would suggest we will not see a big impact from inbound freight prior to the March 1st tariff deadline. With that being off the table, the chances for surging volumes prior to the standard spring seasonal push seem slim. That being said, volumes are not falling rapidly, and rejection rates are essentially flat through the first week of February. There is still room to fall, however, and historically speaking February has as much chance of finding a floor as January, but each passing week the odds get smaller for falling any further.