Contract van rates took a $0.14 hit from November to December. This marks the most significant MoM decrease in contractual rates this year. On the other hand, spot rates jumped $0.02 MoM, from $2.38/mile including fuel on average to $2.40, according to DAT. This marks the first increase in DAT’s spot rate data since Jan. The slight jump is more than likely a peak season, pre-Thanksgiving Day push for last-minute shipments that ended up flooding the spot market.
The decrease in contractual rates makes sense when compared to the van outbound tender rejection index, which is basically the amount of freight being turned down by shippers who tender freight electronically. The current van rejection rate is sitting at 3.6% as opposed to almost 19% this time last year.
Freight outbound from the Midwest continues to carry the heaviest price tag at $2.65/mile on average, according to DAT, followed by the South, Southeast, and West all following suit at $2.29/mile. The cheapest outbound region? The Northeast, with a national average of $2.26/mile.
The most recent release of the LMI or the Logistics Manager’s Index came in at 53.6 this week. The release is only 2.3 points away from its lowest reading set back in April 2020 at the very beginning of the pandemic. The LMI is a surveyed diffusion index that measures 8 supply chain-related indicators such as transportation prices, warehouse capacity, inventory levels, etc.
Any reading over 50 represents expansion and anything below 50 represents contraction. The report made note this month that none of the tracked indicators within the index saw additional growth and that both transportation prices and warehousing capacity remained in contraction territory.
On a side note, since August of this year, the rate of contraction in warehouse capacity has steadily decreased from a 42.3 reading to its most recent release at 46.8. Transportation prices on the other hand, have deteriorated significantly as far as the LMI is concerned. Moving from an expansion rate of 89.7 back in March to its most recent reading of 37.4. Over the same period, transportation capacity moved out of contraction territory and into expansion mode, registering a 71.4 in November, very close to its all-time high.
The divergence between transportation capacity and prices supports the notion of a noticeable market shift, as it should due to the fact that when supply or capacity increases for an extended period of time and demand does not, the imbalance will create an opportunity for price deflation to occur.
This has been your Bridge Logistics Market Update for the week of Dec 5th, 2022.