This Week’s Chart: National Outbound Order Rejection Index (OTRI) in the U.S.
The national outbound order rejection index (OTRI) measures the rate at which carriers reject truckload capacity requests from shippers. During Hurricane Milton’s approach to Florida’s west coast on October 8-9, this ratio surged from 5.13% to 5.62%, marking the largest single-day increase in the past two years. This is the third major disruption event within less than a month, offering insights for transportation providers and managers.
Hurricanes can act as catalysts for drastic changes in North American transportation markets, often making it harder to find truckload capacity. Transportation activities may stall for days, with infrastructure such as roads and warehouses damaged, followed by post-disaster relief demands on carriers.
The 2017 Hurricane Harvey was the longest-lasting catalyst for tightening the truck market over the past two decades, excluding the impact of COVID-19.
In the days leading up to a hurricane, carriers tend to avoid entering hazardous areas. Shippers may increase orders in an attempt to move goods out of danger zones.
The inbound order rejection rate in Lakeland, Florida’s Central region, soared above 15%, reaching its highest level since the end of the pandemic era early 2022.
Outbound order volumes also increased before the storm but dropped sharply upon landfall.
Such activities can lead to bottlenecks in transportation shipping after the storm. Since early 2022, the national freight market has operated like a well-oiled machine, with sufficient truckload capacity available to fill gaps during disruptions.
Sequential Disruptions
Milton is the third major disruption to the national transport network within the past three weeks. On September 26, Hurricane Helena made landfall as a large Category 4 hurricane in Florida’s Big Bend region. Most of the damage occurred inland as the system quickly moved towards northern Georgia and western Carolina. Due to the lack of significant outbound transportation from affected areas, the storm caused catastrophic regional damage but did not immediately disrupt transport.
The second disruption was a three-day strike by the International Longshoremen’s Association (ILA), which led to several days of container clearance and shipping activity losses at East Coast ports. Although many shippers were prepared for this event, there was still a slight deterioration evident in order rejections and spot price increases.
Shippers could prepare, but carriers had little choice but to seek other cargo to transport during the strike, making it difficult for them to realign quickly after the strike ended. With relatively thorough preparations by shippers and the short duration of the strike, there was no strong urgency to recover.
Milton clearly has the most significant impact, at least on the surface. The timing of this event coincided with the tail end of the previous two network changes, potentially amplifying its effects.
Slow Spot Market Response
As of Thursday, the spot market had not quickly reacted to Milton. The National Trucking Index (NTIL), adjusted for fuel impacts, continued to decline. Under normal circumstances, there is a strong correlation between spot prices and order rejections; why then has the spot price responded more slowly?
Due to carriers avoiding areas ahead of the storm, there was ample capacity outside the most affected regions, insufficient to significantly raise national freight rates in that area. In other words, just wait.
As shippers resume operations next week and post-disaster relief efforts officially begin, spot prices are expected to rise as capacity is inevitably redirected to this region.
The Federal Emergency Management Agency (FEMA) will require assistance from carriers nationwide, with some shipments paying far more than what they receive from existing clients. This forces them to choose between FEMA cargo and client cargo. The scale of the impact remains to be assessed.
Contract rates show signs of rebounding in the environment, though they may still be declining. National contract rates for dry van truckload freight are down about 2% year-over-year but have been relatively stable over the past six months, rising 1% from the previous quarter.
This means that under a supply-rich environment, carriers have essentially reached their willingness to lower prices to secure business. In other words, prices are so low that there is little financial incentive beyond existing clients to mobilize carriers for additional freight.
The initial rejection wave merely reflects an inability to physically move cargo. The next phase will reveal the market’s vulnerability, specifically how much redundancy exists to intervene and manage recovery.
October traditionally sees a slower period in trucking, making the increase in order rejections particularly significant. The transportation market appears resilient enough to handle two major events but remains uncertain about the third. Much information will be revealed over the next few weeks leading up to peak retail shipping season.
About This Week’s Chart
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Source: FreightWaves
