How freight markets react amid weather-related chaos

Tony MulveyFreight Market Blog

Major weather storms have been prevalent throughout the years and 2021 is no exception the major winter storm that swept the nation in February, multiple hurricanes with the latest, Hurricane Ida, ravaging the Gulf Coast. These major weather events affect transportation markets in the days leading up to the event and following the events in different ways. 

Major weather events hamper transportation markets from both the demand and supply sides of the market. 

The demand side of the market is an easier impact to understand. Freight demand tends to climb leading into a storm and then falls off in the markets heavily affected in the days immediately following severe weather (and the length of disruption depends on the damage done). This is for numerous reasons: flooding of interstates/major highways, power outages and storm damage are among the key impacts to freight markets. Inbound volumes are traditionally softer prior to the storm, as carriers don’t want to be stuck in a potentially affected area, but will increase following the storm as relief efforts begin.

FreightWaves SONAR platform highlights many of the changing market dynamics surrounding weather events. For example, the Outbound Tender Volume Index (OTVI) is a 7-day moving average of shippers’ requests for capacity. In the New Orleans market, OTVI collapsed following Hurricane Ida’s devastating impact, falling 15% since Sunday, August 29. The flooding, loss of power and devastating damage have decimated the volume levels out of New Orleans. 

Inbound volumes into the New Orleans market have surged, up 17% week-over-week (w/w), as the relief efforts have gotten underway. In recent years (since Hurricane Katrina hit the Gulf Coast 16 years to the day that Hurricane Ida hit), FEMA has become one of the savviest buyers of transportation surrounding disasters. The problem that FEMA faces currently is that the freight market is tighter than it has been in recent history. This meant FEMA had to pay higher rates for carriers to forego high-paying long-haul opportunities in order to position themselves in areas affected by the storm.

The supply side of the market is much more opaque in nature. Tender rejection rates are one way to understand the current spot market, as tender rejection rates are a measure of relative capacity in a market. The tighter the market, the higher the tender rejection rates are. In addition, the rates to haul freight out of the market are going to be more expensive, particularly if the carrier’s destination is a less desirable market.

When weather disasters strike, carriers become increasingly selective of the markets they are willing to enter under severe conditions. The Inbound Tender Rejection Index (ITRI) is a measure of carriers’ willingness to enter a market under contracted rates. When disasters strike, ITRI spikes as carriers’ willingness to enter markets dissipates, causing upward pressure on rates.

While Hurricane Ida and the New Orleans market are an easy target to show how carriers’ willingness to enter an affected market changes, there are many occasions when this has happened.

ITRI KC

(Source: FreightWaves SONAR – Inbound Tender Reject Index for Kansas City in 2019)

 In 2019, record snow and ice affected the Kansas City market, leading to major flooding in March, closing down sections of Interstate 29. In 2019, the overall freight market was looser than it has been at any point in the past year, but the flooding caused capacity to significantly tighten in Kansas City.

Though inbound rejections in comparison to current levels are depressed, the overall impact was significant as carriers were opting for loads to other markets unless rates were increased. Spot rates during the time of disruption from the flooding were the highest of 2019, outside of holiday season at the end of the year. At that point capacity was tightening as 2020 began, due to carriers being less willing to enter the market.

Interested in getting an edge during weather-related chaos? FreightWaves is the nerve center of the global supply chain and SONAR is the global dashboard. The SONAR data platform offers the fastest and deepest set of freight market data on the planet. Benchmark, analyze, monitor and forecast everything that is happening around the logistics world with SONAR.