Truckload market only in early stages of easing
Contracted truckload volumes were unaffected in March
Week planner: Vn Outbound Tender Volume Index, Truckstop.com 7-Day Truck Price Per Mile – USA SONAR: VOTRI.USA, TSTOPVRPM.USA
After nearly 19 months of averaging above 20%, national rejection rates are at their lowest since June 2020 — dry-truck rejection rates are at 9.9% and are down as of Thursday. Spot rates have accelerated their decline over the past two weeks, but have fallen for dry trucks and refrigerated loads since the first week of February. The truckload market is certainly transitioning to a more fluid state, but there are phases to easing the freight market and we are now just about to finish the first one – contract compliance.
Spot rates have always been the first aggregate indication of truck load capacity changes due to the relatively high visibility. Prices are still somewhat slow in terms of the willingness of the people who control them – carriers and intermediaries – to move them in a certain direction depending on their needs.
From a medium to larger carrier perspective, they focus on maintaining use first and then expanding their margin. Even so, it is not so simple. Calculated profit margins are very similar to error margins as there are a number of unexpected things like traffic and retention that may affect the profitability of the load before it is delivered. Carriers offer to move loads at less than cost when they have no other options in the oversupply area.
Most of the upward price pressure over the past year and a half has stemmed from offers from shippers and brokers offering prices above what the carrier would need. To this point, brokers and shippers don’t know the capacity is tight so they can’t secure a load or their contract carriers stop accepting the loads. This makes bid rejection the first clean signal available to the market as no human modification or evaluation is required.
Bid acceptance/rejection is a single decision point rather than multiples built into the pricing, making it faster and cleaner. Looking at the chart, you can see bid rejection rates accelerating down a week against the spot rate.
Several publications and companies have reported growth in trucking during March, but this is only partially true. Reading between the lines, you have to look for a key term: contract.
A contracted freight market is freight that moves under a pre-determined fixed rate agreement that lasts longer than a single day or transaction. Most of these agreements between carrier and shipper/3PL are created in periods of 12 months or more.
This is what bid data is based on because it requires a predetermined rate that both parties have agreed to. Only electronic bids can be accepted or rejected and have no place to bid.
When the freight market ebbs, carriers start accepting more contract loads and the spot market erodes. The time it takes for the market to settle depends on the starting tightness. Merchandise shipment rejection rates dropped from 19% at the beginning of March to 12.5% by the end of the month, which means there is still a significant portion of freight likely to come down to the spot market.
Acceptable bid volumes, loads carried under contract, were high throughout the entire month of March. This means that the erosion of freight demand has not affected volumes contracted yet.
Contract rates (VCRPM1), excluding fuel, have increased nearly 21% over the past year, according to FreightWaves’ $80 billion database of billing data, a number well above the inflation rate. This means that carriers with a large percentage of contracted freight should have had a consistent month from an annual perspective.
The rejection rate indicates that carriers have simply covered more loads under long-term agreements as the market stabilizes. If volumes continue to fall, the spot market could become an area where shippers and brokers go to get discounts from inflated contract prices rather than just a place to bid for capacity.
If this happens, it will speed up the cycle as carriers large and small alike are forced to cut rates quickly. Shipping stagnation is almost taken for granted given the frenetic nature of the market over the past nineteen months, but its intensity and length remain in question.
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