Is a freight market turn coming in May?

Rejection rates react to tariffs 

Tender rejection rates have remained above levels of the past two years and have also been more sensitive to events, suggesting the freight market is closer to a period of widespread tightness. The bounce in tender rejection rates in March was largely driven by flatbed in response to tariffs. (Chart: SONAR)

Clearly, we are in a period of unusually high economic and freight demand uncertainty, and the stock market pullback the past two weeks could put a damper on consumers’ willingness to spend. But, transportation capacity continues to exit the industry at a rapid pace, and tender rejection rates show that the freight market has become more sensitive to events, such as holidays and winter storms, that often temporarily tighten capacity. 

Net trucking authorities have been negative for most months since Q2 of 2022. (Chart: SONAR) 

For widespread tightness to be felt, it may have to come at a seasonally strong time of the year. March is often a strong month for freight volume, but freight demand this March has been disappointing the past several weeks, impacted by a pull-forward of imports and bloated upstream inventories. April is typically a lackluster month for freight demand. That leaves May, when we could see a diminished supply and hopefully solid demand come together, resulting in market tightness that is widespread rather than concentrated in certain locations (often involving significant out-of-route miles) and equipment types (often specialized), as it is now. See this article for more detail.

Freight demand, measured via the Outbound Tender Volume Index, is tracking in line with 2023 levels. If that holds, demand will increase in the second quarter. (Chart: SONAR)

Ocean bookings for US imports bounce back after Chinese New Year 

(Chart: SONAR)

The U.S. West Coast ports have been regularly setting records in recent months with imports running about 15% above historic levels. The questions then become whether that was simply due to a pull-forward to avoid imports and whether that is going to lead to a subsequent major falloff in U.S. imports with implications for domestic freight demand.

One of the major SONAR datasets to watch related to those questions is IOTI.USA, which is an index of U.S. twenty-foot equivalent units for import taken at the point of overseas origin. Currently, it is not showing any evidence of shippers pulling back on booking containers for U.S. import. In fact, the latest data point is 25% higher year over year, or 2% higher versus the March 2024 high (likely a better comparison given the difference in the timing of Chinese New Year). That suggests there is further runway for strong rail intermodal volumes originating at the West Coast to continue and that demand for warehousing in Southern California will remain strong in the near term. 

China Plus One or China plus none?

(Chart: SONAR)

We all hear a lot about manufacturers diversifying away from China, for a variety of reasons. In addition to tariffs, which are threatened to rise to 60%, there are concerns over stolen intellectual property, human rights abuses and other geopolitical issues. And, clearly, some supply chains are diversifying away from China. There is evidence of that in the SONAR Inbound Ocean TEUs Volume Index the past few years, which shows ocean bookings from Vietnam to the U.S. (yellow line above), on a much smaller scale, growing faster than bookings from China to the U.S. (white line above).
However, on Monday, FreightWaves’ Grace Sharkey highlighted the limitations of moving production out of China in an article titled, Global manufacturing is repositioning – but it’s complicated. Southeast Asia faces limitations in highways and other logistics infrastructure including deep-water ports, which prevents the largest cargo vessels from docking, thus requiring transshipment through hubs like Singapore. As we learned last year, the Port of Singapore can get very congested. Plus, the Chinese government makes sure that manufacturing facilities are staffed with sufficient numbers of trained workers who are not accustomed to anything resembling a work-life balance. Sharkey highlighted an anecdote of a company that struggled with moving production from China to Mexico in part because Mexican workers were accustomed to working a set schedule.

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