Chart of the Week: Outbound Tender Reject Index, National Truckload Index (linehaul only) – USA SONAR: OTRI.USA, NTIL.USA
National tender rejection rates (OTRI) and truckload spot rates (NTIL) have for the second year in a row received a boost from winter weather in mid-January. Winter weather has been far more disruptive to the U.S. freight market than tropical systems over the past several years. Timing and geography play large roles in why. Market context and, thankfully, a lack of long-term damage leads many to ignore the fact that winter storms have had a stronger influence on rates and service disruptions over the past year than either of the two major hurricane landfalls.
Although it is challenging to isolate the specific impacts of the hurricanes due to other factors, such as the ILA strike in early October, it is clearer that winter weather significantly affected the freight market, given the absence of other major events in January.
Rejection rates rose from 4.4% to 4.96% in the week following Hurricane Helene’s landfall in late September and increased further to 5.96% after the ILA strike and Hurricane Milton in early October. In comparison, rejection rates climbed from 4.2% to 5.4% last January when arctic air swept through much of the central U.S. and surged from 6.6% to 8.7% earlier this month after two winter storms struck the Midwest and southern U.S. This year’s market appears to be more reactive, although hard to say definitively given the differences between the storms.
Market matters
When comparing this year’s OTRI and NTIL to last, there has been noticeable growth in both indices. The growth is not a result of the winter weather events being more severe, but rather from the long-running trend.
The OTRI is a measure of carriers’ availability to cover loads from their existing customers. Higher values indicate carrier networks are strained and truckload capacity is harder to attain.
Before there was any concern for weather, the OTRI value on Jan. 4 last year was 4.55%. On the same date this year, that value was 6.8%, again prior to any strong concern of weather. The difference between these two values mostly indicates that the market had tightened by a good amount over the past 12 months.
The spot rate is a less objective measure of market conditions due to the fact that there is an emotional and inflationary component to it, but rates excluding the influence of fuel were up 12% y/y when comparing the post-holiday bottoms.
Rejection and spot rates tend to fall throughout January and February when there are no disruptive events, as this is seasonally the slowest time of the year for transportation demand.
Hot vs. cold
Hurricanes tend to hit during the most active times of the year for transportation – late third and early fourth quarter – making them naturally more concerning. The fact is that winter weather has been far more consistently disruptive than its warmer weather counterparts to transportation markets over the past decade.
Some of this has to do with the fact that the Federal Emergency Management Agency has become much better at handling the initial responses. Another major difference is that hurricanes tend to hit outside of major population and freight centers, whereas winter storms hit large swaths of geography and many major freight hubs, like Dallas and Chicago.
Ask anyone who has been in freight over the past 10 years and they will probably point to Hurricane Harvey as the biggest natural disaster influence on transportation, but many forget that the freezing weather that shut down the power grid in Texas in February 2021 may have been largely responsible for extending the pandemic-era transportation boom.
National rejection rates had fallen to their lowest levels since the pandemic started in early February 2021, then a massive winter storm (unofficially named Uri by The Weather Channel) plunged all the way to the Gulf Coast, dropping copious amounts of snow and ice. Power grids failed due to inability to handle the unanticipated load of energy needed. The system did an estimated $25 billion in damage, according to the National Oceanic and Atmospheric Administration.
Shipping networks were disrupted for days just as many were starting to think that the pandemic-triggered supply chain crisis was easing. Shippers reentered panic mode and resumed shipping en masse. This was not the only cause of the bump in shipping activity, but the timing makes it undeniable that it was a catalyst inside of a market that already had high reactivity.
Backed up
Winter storms’ biggest disruptive force is creating backlogs. Winter weather hitting the Northern tier of the country is generally expected, which also means shippers and carriers alike tend to dismiss their potential impact. Tracking truck activity in front of a hurricane is like watching ants scatter out of the way, although in the South this is common for strong winter weather as well.
Shippers also are more likely to shutter operational activity in front of a hurricane and wait till the winter storm hits before making any decisions. In other words, there is typically more preparation for hurricanes than for winter weather.
Perhaps another big reason why emphasis is placed on hurricanes over winter weather is that the damage to infrastructure tends to be larger and longer-lasting, whereas once winter weather passes, there is little long-term evidence it ever hit.
Regardless of the magnitude, winter weather has been a bigger problem for transportation than its tropical counterparts in recent years. While winter storms Blair and Cora (as named by The Weather Channel) are probably not names anyone will cite in years to come as a major influence on their business, they registered a much larger measurable hit to transportation networks than the tragically destructive hurricanes Helene (estimated at greater than $78 billion in damage) and Milton (estimated at more than $34 billion), according to the OTRI and spot rates.
This is not to say that hurricanes like Helene and Milton do not deserve our attention and respect as life-altering catastrophes, but that winter storms deserve more attention as threats to transportation and shipping patterns.
About the Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.
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