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Empty wallets threaten seasonal growth

By March 29, 2023No Comments

Consumers tapping into a dry well

The gap between current levels of freight demand and those of 2019 is narrowing, casting doubt on the market’s ability to sustain seasonal growth. Given that the broader economy has been rocked by fears of another global financial crisis, this failure would be understandable. In fact, today’s market should be much weaker than it actually is: Not only does it suffer from 2019’s problem of persistent overcapacity, but the consumer has been battling extreme inflationary pressures for more than a year.

This week, the Outbound Tender Volume Index (OTVI), which measures national freight demand by shippers’ requests for capacity, barely moved. OTVI rose 1.1% on a week-over-week (w/w) basis. On a year-over-year (y/y) basis, OTVI is down 23.7%, yet such y/y comparisons can be colored by significant shifts in tender rejections. OTVI, which includes both accepted and rejected tenders, can be artificially inflated by an uptick in the Outbound Tender Reject Index (OTRI).

Contract Load Accepted Volumes (CLAV) is an index that measures accepted load volumes moving under contracted agreements. In short, it is similar to OTVI but without the rejected tenders. Looking at accepted tender volumes, we see a slim rise of 1.1% w/w as well as a fall of 12.8% y/y. This y/y difference confirms that actual cracks in freight demand — and not merely OTRI’s y/y decline — are driving OTVI lower.

Banking panics aside, the economy has been sending confusing signals for several months now. By simple logic, the drastic rise of inflation should compel consumers to tighten their budgets and lessen their discretionary spending. But, instead of succumbing to these economic headwinds, consumers are largely opting to spend. Per data from Bank of America, discretionary spending across all income levels accounted for a greater share of total spending in February 2023 than it did in ’22.