Date: Monday, November 13th, 2023
Source: Freight Waves
Outbound tender volumes spiked out of two of the nation’s largest origins last week after a relatively subdued October. This unseasonal spike in demand may be a sign of things to come this holiday season after a year of shippers having a relatively easy time getting transportation capacity.
The Ontario, California, market is home to one of the U.S.’ largest warehousing districts known as the Inland Empire. Several Fortune 500 retailers have a presence here due to the proximity to the ports of Los Angeles and Long Beach. Demand spiked 26% to kick off November out of this market.
The Dallas market has grown in prominence over the past few years, becoming a top 5 market in terms of overall share of freight demand origination, and is in a state that has become a focal point of growth as supply chains diversify. Outbound tender volumes jumped 12% last week.
Both of these markets originate a large amount of freight that moves multiple days’ journey to the final destination — well upstream of the consumer.
While it is not terribly unusual to get demand spikes leading up to the holidays, they normally do not occur at this scale.
Looking at this historical national Outbound Tender Volume Index (OTVI), there are instances of demand growth at the start of November in three of the past five years. This jump in demand is generally 2-4%. The recent increase from a national perspective was 6.4%.
Traditionally, this level of increase would have led to a deterioration in capacity, but nearly all of these loads were accepted by carriers. And potentially more impressively, lead times between tender and requested pickup were reduced to near annual lows for both markets. Shorter lead times give carriers less time to position their trucks and are generally more difficult to cover.
Import booking volumes (IOTI), though subdued compared to the pandemic period, were unexpectedly strong in the third quarter, leading many to believe we were experiencing an early maritime peak season — generally occurring in August. While this may have been true, demand remained strong leading into early October, especially for the Port of Long Beach.
During the pandemic years, imports immediately were transferred to the rails or trucks and made their journey toward the consumers with downstream inventory levels consistently low. Now that inventories are mostly rightsized, shippers appear to be holding goods in upstream warehouses until signs of demand spark shipping activity instead of just moving it right away.
Basically, shippers are keeping inventory on a more just-in-time basis versus just-in-case with goods and transportation more consistently available.
As we approach the holiday season, this practice will get more expensive as capacity is less available and the sense of urgency for many retailers increases. While it may not mean a historic rise of rates or anything sustainable, it will lead to increasing instances of demand spikes and expedited or guaranteed service shipments.
Shippers are probably prepared to pay in these instances as the increases are nominal compared to the 2020-21 years. There still may be some instances of sticker shock after an extremely easy year for sourcing capacity.
All of this hinges on consumer resilience, but they have given no signs of slowing thus far.