April 2022 Market Update - Arrival Logistics (2023)

Conditions in the freight market changed significantly in March as a result of a sharp increase in diesel prices. Increasing bid acceptance rates and complying with routing guidelines limit spot market opportunities, spurring competition and lowering spot rates. Deflationary rate conditions are still expected in the forecast for the remainder of 2022, but how far and how quickly rates drop depends largely on how long high fuel prices last and how local carriers react.

Changes to the capacity landscape as a result of rising fuel costs and changing market conditions can take several months.

The strong growth in single-truck operations since the mid-2020s has created exposure to downside risk in truck capacity rates due to the nature of the competition it creates in the spot market. We're not sure how long the high fuel tariffs will last, and ultimately how much impact this will have on efficiency trends, but if small businesses start closing stores, second-hand equipment and skilled drivers should start to become available for larger fleets.

OWaves of convenienceThe SONAR Outbound Tender Volume Index (OTVI), which measures contracted freight volumes across all transport modes, was down 15.1% year-on-year in early April. However, it should be noted that OTVI covers both accepted and rejected cargo bids, so we must consider the relevant Outbound Rejection Rate (OTRI) to find out the true measure of accepted bid volumes.

Applied to the year-on-year value of the OTVI, the negative trend towards an increase in auction volumes changes to an increase of 0.4%. The number of rejected proposals decreased by 50.8% - from 26.35% to 12.97% year-on-year - which helps to explain the increase in the volumes of accepted proposals with a large decrease in the total number of proposals.

By type of equipment, the dry van tender volume index decreased by 15.1% and the refrigerated tender volume index decreased by 29.3% year-on-year, corresponding to an increase of 0.7% and an increase of 1 .5% in real volumes for both modes. As of March 1, rejects were down more than 52% year-over-year for dry and refrigerated vans, indicating positive growth rates in terms of actual volumes.

Year-over-year DAT data shows that spot volume increased by just 3.7% in March, fell more than 100% year-over-year in January and 24% in February. This is in line with the decline in bid rejections as fewer charges fall to point plates.

The 13% weekly decline in the first full week of April also confirms that spot demand is declining even faster, but remains in line with normal Q2 seasonality trends.

The April Total Volume Index for all FTR and Truckstop modes is down 13% from the first week of March and is now down 18.4% year-over-year - a sharp drop from 32% just two months ago.

Last year, spot volume continued to be high in March and April after ice storms hit the southern states, making year-over-year comparisons difficult. That said, recent spot volumes in early April continued their downward trend.

This contrasts with the historical averages of the FTR/Truckstop data, which is heavily loaded into the platform and specialty equipment space, thus seeing an increase in volume in early spring due to new construction. However, it should be noted that while overall spot market activity is slowing in the Truckstop dataset, there is strong evidence that the rig market in early April is solid as the construction season gathers momentum.

The Sonar Outbound Tender Reject Index (OTRI) measures the rate at which carriers reject cargo they are contractually obligated to accept. The index was at 11.07% at the beginning of April, after accelerating in the last month, which was a very consistent drop, coming from a high of 22.75% in the first week of January and 18.77% in the beginning of March. This is the lowest OTRI since the pandemic shutdown intensified in mid-June 2020, approaching the levels we would expect in a market in equilibrium.

While we believe the recent improvement in the data is representative of better contract compliance due to rising contract rates, these trends suggest that current capacity is better positioned to handle demand than in the past. Even so, the market remains vulnerable to major capacity outages or events that could suddenly reverse the recent increase in contract fulfillment.

OTRI fell sharply in March and April, illustrating the immediate impact of rising fuel prices on route fulfillment.

Rejected bids for dry vans and refrigerated trucks followed a similar trend as the all-modal index, falling sharply as diesel prices rose.

The DAT Load to Truck Ratio measures the total number of loads compared to the total number of trucks listed on the load plate. In March, the van to truck dry cargo ratio dropped to 4.57, down 37.7% on the month and 20.9% on the year. Recent trends indicate that conditions may improve further in early April for all three equipment types.

The ratio of refrigerated trucks to trucks also dropped sharply to 8.39, down 38.9% month-on-month and 31.3% year-on-year.

Weekly truck load indexes show spot market conditions continued to improve through April. This typical trend is exacerbated by rising fuel prices and a sharp drop in demand for truckloads. Similar to OTRI's measurements, truck loading rates are approaching the levels we would expect in the equilibrium van and refrigerated truck markets. With the construction season starting in warmer climates, flat shelf activity remains strong and indicators remain high as well.

The Morgan Stanley Dry Van Freight Index is another measure of relative supply - the higher the index, the tighter the market conditions.

According to the latest index, conditions followed a similar trend to DAT and Freightwaves SONAR data, declining rapidly in March and early April. The black line with triangular markers on the chart gives you a great idea of ​​which directional trends would follow normal seasonal patterns based on historical data.

Looking ahead, normal seasonality would indicate a continued reduction before demand returns in mid-May. Memorial Day through July 4th is consistently one of the busiest times for freight throughout the year, and the trends we see during the peak summer season will be very telling as to whether the recent mild trends will continue for the rest of the year. .

Since the beginning of April, improving spot market conditions and the normal seasonal downturns at the beginning of the second quarter have resulted in a sharp decline in spot rates for Dry Van and Reefer equipment, while rig rates continue to increase as as the construction season begins.Normal seasonality would indicate that we should expect more downward pressure on spot rates through mid-May and the peak of the season.

Spot prices have fallen at a rapid pace and are on track to end the month down year-on-year for the first time since 2020.

Contract rates for dry vans have remained high and currently hover around $2.65 per mile excluding fuel.

This trend - where contract rates don't fall as quickly as spot rates - usually occurs after spot rates peak and start to decline. Contract rates are tied to longer contract periods and can be locked in for a year or more. Given that we still expect further declines in April, many shippers are waiting to see how rates develop over the next month before bidding on their deals again. These factors result in tighter trends in contracted freight rates and a widening spread between contracted and spot rates, which in turn means that further declines in spot rates are likely as contract compliance should improve.

Contract rates for reefer containers are starting to come down and are currently at $2.71 per mile excluding fuel.

Declines in contract rates are nowhere near as sharp as refrigerated spot rates, which are falling as fast as dry van spot rates. The rig market sees contract rates increase in early April, now at $3.02 per mile excluding fuel.

• Economic activity in the manufacturing sector accelerated in March, with the economy as a whole recording 22 consecutive months of growth. The March PMI was 57.1, indicating that output is expanding, albeit slightly weaker than in February.
• LTL volumes are holding steady as capacity continues to come under pressure from a supply chain struggling to recover from labor shortages and backlogs caused by the pandemic.
• We also see excesses in the FTL world, where outbound shipments are extremely expensive and using LTL is more cost-effective. Inflation and fuel costs remain an issue, but general cargo continues to hit records as inventories continue to be replenished.
• Carriers report that the pricing environment remains healthy as shippers need to maintain their current LTL capacity.

• Our forecast last month was accurate – volumes coming out of March and April remain high and surpass 2021 levels. All indications are that 2022 will be a good year.
• We continue to monitor the semiconductor shortage as it remains a major limiting factor in the automotive sector, which is one of the key industries driving international volume.

• Volumes remain at 2021 levels, with exports expected to remain in the range of 55-70 ITVI through Q2.
• Throughput remains high despite freight imbalances, which bodes well for shippers who need capacity for internal imports from Laredo.
• That said, any hit to available capacity in the coming months is likely to change things as it appears we are still dealing with the same volume imbalances as in 2021.

• Productivity remained balanced until March, oscillating between 5-8%. This represents a drop of about 50% per year. As Laredo Texas volume remains high throughout March and April, this is likely a by-product of the national volume slowdown, freeing up additional capacity in the market, as well as the entry into force of rate increases in 2022.
• Cross-border carriers prefer long haul routes, so we are likely to see capacity challenges and/or cost increases for freight with domestic routes of less than 500 miles.
• While we believe sustainable bandwidth is likely to hold for the next 1-2 months, we still expect bandwidth constraints to lift in Q2 as demand for bandwidth continues to increase through the summer.

Changes to the capacity landscape as a result of rising fuel costs and changing market conditions can take several months.

The strong growth in single-truck operations since the mid-2020s has created exposure to downside risk in truck capacity rates due to the nature of the competition it creates in the spot market. We're not sure how long the high fuel tariffs will last, and ultimately how much impact this will have on efficiency trends, but if small businesses start closing stores, second-hand equipment and skilled drivers should start to become available for larger fleets.

Used truck prices peaked in February before fuel prices rose. March data is yet to be released, but we expect current market conditions to drive prices down as dwindling opportunities in the spot market and additional supply from operators exiting the market should put pressure.

We anticipate continued performance challenges through 2022 as a result of equipment and labor shortages, along with fuel costs. Buying new equipment will take time -FTR reports that Class 8 truck production is down 12% daily, and the build rate is not expected to increase significantly anytime soon as shortages of semiconductors and other parts continue.

The drop in production resulted in a slight increase in the average order-to-delivery time, from 10.4 months in January to 11.6 months in February. FTR continues to note that new truck orders are not a good indicator of demand as OEMs continue to measure new orders trying to control the backlog, and lead times for new trucks are unlikely to improve over the next month as more orders are placed and production levels stabilize.

Delivery times for new trucks increased from 10.4 months in January to 11.6 months in February as production levels improved during the month.

Production of new trailers improved 2% in February and is expected to continue as parts availability improves. As with the truck backlog, OEMs are reducing new orders to control the backlog, making new orders a poor indicator of trailer demand.

The FTR forecast for truck utilization – the share of seated trucks actively engaged in freight transport – remains unchanged from last month's update, with an expectation of at least 97% by 2022 and 96% by 2023. , there is a risk of staying mainly in the red.

Forecasting freight demand remains a challenge as the COVID-related shutdowns in China and the war in Ukraine pose unknown risks to future availability or demand for certain goods or materials.

While high inventory levels indicate some declines in consumer demand, they also provide some assurance that freight will shift if the flow of goods from China to the US is severely reduced. Having inventory on hand not only protects shareholders from rising costs due to future inflation, it also ensures availability. This has been a pain for many people during the pandemic.

While the March Logistics Managers' Index shows a slight decline in inventory levels from February, it is still the second-highest reading ever, indicating that inventories remain at historically high levels.

The global conflict also brings some upsides to truck demand, such as an increase in demand for corn or grain exports to help make up for expected supply shortages in Ukraine.

Notably, the rise in backlogs in manufacturing and industrial production accelerated in February as new orders rose sharply.

Inflation remains the biggest threat to the economy. Rising costs will ultimately have a stronger impact on consumers, which in turn will slow down economic growth. Persistent inflation and rising interest rates would also pose a threat to housing construction as housing costs rise due to rising construction material costs.

Recent events appear to have had minimal impact on the latest FTR truck load forecast, which forecasts a 4.1% increase in 2022. The forecast continues to show growth through 2024, albeit at a slower pace. Time will tell if rising inflation will affect the outlook, but for now all hardware segments should expect strong demand for the foreseeable future.

The consumer price index rose again in March to a new 40-year high, with prices rising 8.5% year-on-year. The data shows that the price increase has not yet had a significant impact on consumer demand, but we believe that reduced consumer purchasing power will cause consumer demand to decline if inflation persists or worsens.

Bank of America (BofA) consumer spending data, which provides insight into changing consumer behavior and spending patterns, showed that total card spending increased 3.2% year-over-year and 24.1% in compared to 2019. in the 7-day period to April 2 . These numbers indicate that consumer spending has remained high despite the increase in gas station prices in March.

As inflation continues to rise, we know that the same dollars spent a year ago don't equate to the same dollars spent today, so spending more doesn't necessarily mean more shipping.

Demand for trucks is also affected by the allocation of consumer dollars that are spent on durable goods versus services. March data illustrates a slight decline in spending on services, but as long as domestic COVID cases remain low, we expectpent-up demand for recreational services will continue. In turn, consumers should spend less on durable goods, with the risk of a drop in demand for trucks.

The short-term outlook is clear: high contract rates will continue to crowd out spot market demand, putting continuous pressure on spot rates until at least mid-May, when the summer season begins. Shippers must experience strong route compliance and be able to hold contracted carriers to a higher level of service when pricing power tilts in their direction.

The long-term implications of the war in Ukraine, the rising number of COVID-19 cases in China, and the rising impact of inflation on the American consumer are unlikely to have the immediate and sudden impact of rising fuel prices. It is more likely that in the coming months this impact will gradually manifest itself.

Deflationary market conditions remain the most likely scenario for the remainder of the year. The rate at which interest rates will continue to fall, and how low they will fall, will depend primarily on how long stock market prices remain high.

Created by Arrive Insights, the Arrive Monthly Market Update is a report that analyzes data from a variety of sources, including but not limited toWaves of convenienceSONAR, DAT, FTR Transportation Intelligence, Morgan Stanley Research, Bank of America Internal Data,Jornal de Comércio, Stephens Research, National Retail Federation and FRED Last month and year-over-year economic data.

We know that market data is essential for making real-time business decisions, and at Arrive Logistics we are committed to providing you with the data you need to better manage your transport.