April Market Update
Truckload spot market rates are rising as demand outpaces capacity
According to data provided by Internet Truckstop, market rates are up 54.8% year-over-year. Due to increased spending, strong consumer sentiment and low inventory levels, most experts agree shippers should expect this trend to continue throughout the remainder of the year.
Bolstered by a third round of stimulus checks, retail sales surged in March, posting a 9.8% increase over February. For context, this is the second highest month-over-month increase on record. The data also suggests that consumers are becoming more comfortable venturing out. Spending at restaurants and bars increased 13.4% month-over-month. Spending within this segment showed the highest year-over-year increase on record at 36.0%. As COVID cases continue to decline and the vaccine reaches more people, continued strength within the services industry is expected. Good news for the American economy.
With consumer spending accounting for approximately 70% of the nation’s gross domestic product, consumer sentiment is one of the best indicators for whether this spending trend will continue. The latest assessments from both the Conference Board and the University of Michigan showed the highest levels of consumer confidence in a year. Lynn Franco, senior director of economic indicators at The Conference Board, provided the following perspective:
“Consumer Confidence increased to its highest level since the onset of the pandemic in March 2020. Consumers’ assessment of current conditions and their short-term outlook improved significantly, an indication that economic growth is likely to strengthen further in the coming months. Consumers’ renewed optimism boosted their purchasing intentions for homes, autos, and several big-ticket items. However, concerns of inflation in the short-term rose, most likely due to rising prices at the pump, and may temper spending intentions in the months ahead.”
As consumer demand surges, inventory levels have fallen to record lows. The latest seasonally adjusted data puts the total business inventory/sales ratio at 1.30 (Chart 1). The lowest level since August 2014. The rush to replenish diminished inventories has led to congestion within both our ports and highways.
As of Sunday, April 25, 39 container carriers were waiting to enter the ports of Los Angeles and Long Beach, only one less than the peak of the backlog which occurred on February 1, 2021. On our roadways, total spot load postings set records during the week ending April 16. Volume in the latest week was up 583% year-over-year, and 193% higher than the five-year average (2015-2019).
Against the backdrop of the previously mentioned macro-economic indicators, produce season is also underway across the United States. Increased reefer demand is an expected component of produce season, and 2021 should be no different. This year we are entering produce season with reefer demand already at high levels. This demand surge can be traced back to February when the artic plunge left Texas in subfreezing temperatures and with a failing power grid. Many goods were spoiled and required replacing, exploding demand for reefers in Texas and creating reefer shortages across the country. The Freight Waves Reefer Outbound Tender Volume Index (ROTVI) has been gradually decreasing since the storm but is still slightly above pre-storm levels (Chart 2). However, this decrease in demand will almost certainly reverse as produce season picks up steam. An increase in the already elevated reefer spot rates is expected as time goes on, especially once the summertime increase in produce and drink consumption begins to take effect.
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