The freight market is currently experiencing a period of flux, with seemingly contradictory trends at play. While carriers are rejecting more tenders, indicating tightening capacity, overall volume remains lackluster, preventing a significant surge in spot rates and rejection rates. This complex interplay between capacity and demand requires careful analysis to understand the underlying dynamics and anticipate future market movements. Hyperloop Capital Insights provides expert insights into these trends, offering valuable perspectives for navigating the current freight landscape.
Table Content:
Capacity Exits Masked by Soft Demand
SONAR’s Outbound Tender Volume Index (OTVI), a key indicator of shipper demand, shows a 2% year-over-year decline. While weather and holiday timing can influence early-year figures, the current softness in volume is notable. This subdued demand is likely mitigating the upward pressure on tender rejection rates and spot rates, which would otherwise be expected to rise more sharply given the increasing number of carriers exiting the market. Despite the dampening effect of low volume, both rejection rates and spot rates are still higher than last year, pointing to a capacity-driven tightening. As we approach the typically stronger freight season starting in March, the potential for a significant uptick in both metrics becomes increasingly likely if volume rebounds.
SONAR Outbound Tender Volume Index
Ocean Carriers Strategically Bypass the Red Sea
Ocean carriers continue to avoid the Red Sea, a strategic decision driven by profitability. Longer routing, while seemingly inefficient, has effectively reduced capacity and significantly boosted earnings. Cosco, for example, reported a 91% year-over-year increase in earnings before interest and taxes in 2024, despite only moderate cargo volume growth. This demonstrates the power of capacity management in influencing profitability. Beyond Red Sea avoidance, the maritime industry faced other disruptions in 2024, including port congestion, particularly in Singapore, and a mid-year shortage of ocean containers. These factors further contributed to the tight capacity environment.
Trans-Pacific eastbound spot rates have seen recent increases but have since stabilized. Projections suggest a potential decline in late February following the pre-Chinese New Year surge.
Intermodal Volume Driven by Consumer Spending and Imports
Intermodal volume experienced robust growth in 2024, driven initially by international shipments and later by domestic transloading due to ocean container scarcity. December 2024 marked the highest-ever December volume for intermodal, solidifying its position as a critical mode of transportation. Sustained consumer spending and a strong labor market contribute to the positive outlook for intermodal. High intermodal volumes suggest shippers are finding service levels acceptable, although anecdotal reports indicate some dissatisfaction with rail service, potentially mitigated by the current lower time sensitivity of many goods.
LTL Rate Hikes Signal Industry-Wide Trend
Roadrunner, following the lead of other Less-than-Truckload (LTL) carriers, announced a 6.9% General Rate Increase (GRI), its first since 2021. This aligns with similar increases implemented by competitors like ABF Freight, FedEx Freight, Saia, and Old Dominion Freight Line. These widespread GRI announcements signal a broader trend of rising prices in the LTL sector.
LTL Rates by Freight Class and Length of Haul
GLP-1 Drugs and Shifting Consumer Behavior Impact CPG
Emerging trends in the retail and Consumer Packaged Goods (CPG) sectors are poised to reshape the industry landscape. The rise of GLP-1 drugs, designed to aid weight loss, has been linked to a decrease in grocery spending among users. Studies indicate a 5.5% reduction in household grocery spending within six months of starting GLP-1 treatment. With projections suggesting widespread adoption of these drugs, CPG manufacturers, particularly those in the indulgence category, face the challenge of adapting to evolving consumer behavior and finding new avenues for volume growth.
Conclusion: Navigating Complexity in the Freight Market
The current freight market presents a complex picture. While capacity tightening suggests upward pressure on rates, soft demand is acting as a counterbalance. Understanding these dynamics is crucial for informed decision-making. Emerging trends, such as strategic capacity management in ocean shipping, the sustained strength of intermodal, rising LTL rates, and the impact of GLP-1 drugs on consumer behavior, further underscore the need for insightful analysis. Hyperloop Capital Insights provides the expertise necessary to navigate these complexities and capitalize on emerging opportunities in the evolving freight market.
