Last week, FreightWaves hosted its monthly State of Freight Webinar, which was moved to a virtual format due to frozen roads in Chattanooga, Tennessee. The deep freeze in the middle of the country not only impacted the two regular participants from attending, but it also may have had an effect on freight markets.
The winter weather conditions that the U.S. has been experiencing, with snow, ice, and bitter cold, have had a bigger impact than just slowing down deliveries from trucks on affected roads. FreightWaves CEO Craig Fuller noted that this type of weather is often used as an excuse for poor first-quarter financial performance by publicly traded companies. However, this year, Fuller believes it is a legitimate reason.
The extreme weather not only affects the physical movement of freight, but it also has a psychological impact, resulting in a shift in demand for products as people avoid retail outlets or activities. This has been reflected in FreightWaves’ data for several key market indicators, which have shown a softening trend.
Despite the early January weakness, Fuller remains bullish on the freight market for the second half of the year. The main reason for this is what he calls the “capacity burn-off,” which was slower than expected in 2023 but is now starting to pick up steam.
FreightWaves’ Director of Freight Market Intelligence, Zach Strickland, discussed how the data in their SONAR platform, derived from U.S. Department of Transportation numbers, shows a decline in capacity. He also displayed charts for the Outbound Tender Reject Index (OTRI) and Outbound Tender Volume Index (OTVI), which are both showing an upward trend. The OTRI is a sign of tightening capacity, while the OTVI indicates an increase in freight volumes. The combination of these trends could be seen as a bullish signal and a potential turn in the market.
Fuller also touched on the impact of recent shifts in global trade routes. He noted that the U.S. is less dependent on the Red Sea and Suez Canal for freight movement compared to Europe. However, there is still an impact on the U.S. market, particularly with the shift away from the Panama Canal, which has caused backups at West Coast ports. With more ships now going to Los Angeles and Long Beach, this could result in more domestic and surface demand, which would be beneficial for the trucking and intermodal sectors.
The recent closure of less-than-truckload (LTL) carrier Yellow has raised concerns about capacity in the LTL market. Fuller believes that other carriers have been able to absorb Yellow’s customer demand due to the weak market conditions. However, as the market heats up, there could be a capacity squeeze in the LTL sector, especially for unique and irregular freight. This could potentially lead to an increase in freight spilling over from truckload carriers, which is not favorable for LTL carriers.
Strickland added that LTL markets tend to follow truckload trends, but they are more resilient due to their smaller size and stability. He also noted that the departure of Yellow has rid the LTL industry of the low-price, poor-service option for shippers, leaving behind a well-managed and flexible group of carriers.
In conclusion, the State of Freight Webinar highlighted some key insights into the current state of the freight market. While the winter weather has had a temporary impact, there are positive signs for the second half of the year, such as tightening capacity and a potential shift in global trade routes. The closure of Yellow has also raised concerns about LTL capacity, but the industry remains stable and well-managed.
