Chart of the Week: Van Contract initial report of average base cost per mile, Van Outbound Tender Rejection Index – USA SONAR: VCRPM1.USA, VOTRI.USA
The post-pandemic trend of pricing long-term or contract rates to the floor is not over, but the data shows this is slowly ending.
Looking at the past six years of dry van contract rates (VCRPM1) and van tender rejection rates (VOTRI), we can see a lagging correlation between the two. Rejection rates tend to lead the slower-to-move contract rates.
What’s a tender rejection rate?
Tender rejections are a measure of carrier compliance or adherence to covering freight under a previously agreed-upon price. Load tenders are electronic requests sent from a shipper to a transportation service provider asking if it can cover a truckload move. The service provider accepts or rejects the load.
The tender rejection rate is the percentage of tenders the transportation provider declines to cover. The higher the number, the tighter the market. Historically, national figures below 5% have indicated that contract rates will fall as there is more carrier capacity than demand for freight. When the OTRI is above 7%-8%, rates tend to increase.
It should be noted that FreightWaves SONAR’s tender and contract rate data biases toward large shipper-to-carrier contract agreements, which represent the baseline and majority of the freight market.
Which era is trucking in?
There have been four general cycles of the transportation market over the past six years, when the tender data history started in 2018. That cycle began in 2017, but we only have history for the past 12 months. This market was characterized by rejection rates averaging above 17% and a strong single upward trend in contract prices that stabilized.
The 2019 market was characterized by a rebalancing of capacity after an overheated capacity growth period in 2018. The above chart shows net changes in active motor carrier of property operating authorities registered to the Federal Motor Carrier Safety Administration. It is not a pure measure of capacity since an authority can represent any number of trucks. It also biases toward growth. Periods of deterioration (in red) are not as common as growth (green).
Rejection rates averaged just below 5% from February to December in 2019, with the market bottoming in August at 3.2%. This cycle lasted 14 months before COVID hit the U.S. in March 2020. There were signs that capacity was tightening before the black swan pandemic event hit, however. Holiday season rejection rates spiked above 14% that year.
The pandemic era was characterized by overwhelming demand and lasted roughly two years, with rejection rates averaging above 20% and rates increasing 50%. The capacity growth was subsequently historic as operators flooded the market, many leaving larger fleets to start their own ventures.
Unfortunately that growth proved to be an unsustainable bubble and began bursting in 2022. Contract rates fell rapidly from July 2022 to the spring of 2023 but have slowed since.
Rejection rates bottomed in May of last year around 2.5% and have been slowly trending higher since. While tender rejections are still hovering in deflationary territory, the indication is that they could move above the 5% threshold sustainably sometime in the next year.
What to do?
For carriers it is a game of survival. For shippers it is an exercise in risk management. For brokers/3PLs it is a balance of both. Shippers have the least sense of urgency but the most control. As with all freight markets, success is determined by how much preparation was made in the previous cycle. The controlling party has to prepare before its turn ends.
Shippers can do the most to control their destiny at this point. Maintaining service should be the goal for any bids implemented moving forward. Some lanes will be harder to cover in a tight market. Diversified route guides and not having rock-bottom rates compared to the market will be crucial.
Service providers need to be vigilant. Watching the market closely for signs of disruption is the easiest action but sometimes hard to do if only looking internally. Targeting customers who are willing to take the above approach is easier said than done, but it is certainly more attainable than in the pre-COVID world.
The timing of a cycle turning has been impossible to predict with precision, but there have been signals that it is approaching. Let’s end this one with a timeless quote from Louis Pasteur, which has become somewhat cliche: “Fortune favors the prepared mind.”
About the Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.
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Elvis A. Diaz
It’s the rate roller coaster about to turn?
I read the whole article and it does not said anything about the title
I did not see anything about “the rate roller coaster about to turn”
It just jump from one topic to another.
Waste of my time.
D
From top-level macros standpoint freight rates will only go up if freight demand goes up or carrier capacity goes down. Obviously there are other smaller factors in play as well but those are the main ones.
Nothing indicates the American consumer which drives the bulk of the freight is ready to buy more stuff. Yet industry articles seem focused on when freight demand will increase.
If you really want to know what will happen is figure out what the big companies are going to do about capacity. Their current policy is maintain capacity they are not dropping. Therefore rates are not going up.
The new chart freightwaves has been touting about authorities is absolutely useless in terms of a gauge of carrier capacity. By the chart it would seem capacity is rapidly exiting the market yet another article mentioned capacity is only down 1.5% in the last 4 years. In same article large fleet capacity is actually higher than ever and almost all reductions in authorities have been smaller carriers exiting but not leaving the industry; just shifting.
The only thing happening is the companies with the deepest pockets are playing last man standing not because that is what is good for business today but because of the hope of killing their competition tomorrow.
Most large corporations in other industries are laying off and figuring out how to do more with less people but not trucking; the biggest players are just soaking up every out of work trucker they can find hoping they can survive longer than the other guy and inevitably push them out of business.
It’s hostile out there in trucking. If you cannot survive longer than the big companies can you might want to consider quitting now. Not because one begets the other but because big companies are going to play last man standing with each other. Which with their deep pockets could easily be another year or two.
For those of you sticking it out drive safe and stay legal. Keep on!
Endof Truckers
Every week is a loss. Sometimes in the low thousands, sometimes in the high thousands. Have not wrote myself a check as of this year yet. Paying my own bills with whatever savings I have left. Don’t see no hope/turnover in sight for a better freight market. over 20 years in business and it’s never been as bad as 2023 and beginning of 2024 is. Insurance has dramatically raised prices, Registration is more expensive, IFTA more expensive, TOLLS more expensive, ELDS more expensive, fuel more expensive , trucks/trailer more expensive. Everything cost so much more from before, Yet the loads pay half of what they paid back in 2018/2019. Freight market is a bust, it’s done for. Like most things in this current political era, If the freight market went down %50 but came up %2 the news medias would consider that the turnover.
ERIC CHAPMAN
Only way I’ve survived this nightmare is to run short
350 miles in the Bowling Green Kentucky area. Out of fingers to count how many times I’ve heard next quarter is going to be the turn around. 33 years and thinking about shutting down. Unfortunately now seeing help wanted signs everywhere for job paying less then 20 a hour. We are being lied to and led by incompetence and corruption.
James Bauman dba Kirplopus MC 895097
Per previous comment, Zach: I assume many Sonar customers are investors; stock traders, etc. I would run a challenge out to these types; that have spectacular insight into data points; challenge them to come up with the best non-freight economic indicators (such as the maxed out credit cards); and geopolitics (effects of sanctions on Russia of global fuel prices, etc) to combine with your freight-related indicators (such as volume of imports coming in 30 days from now)….. find the best inputs to be the best fortune teller in the universe. Geopolitics, realistic CPI via banks vs US gov’t fairy tale CPI, cost of money; so many inputs to experiment with. I’d experiment to find which of last 12 mo’s inputs = today’s freight dynamics; load counts, etc. Per previoius, if I were that legacy carrier, I’d offer a very attractive contract now; beat the competion to get the volume; before the price goes down. What would I have to lose? If I was wrong; and freight prices rise unexpectedly on spot? Just reject the tenders and run spot; which will actually put upward pressure on contracts price.
James Bauman dba Kirplopus MC 895097
IMO, no, not about to turn. Now seeing $12-$14 hiring signs that used to say $18-$20. A 12-pack of Pepsi costs $8 at Publix; that costed $4 (or less!) forever. Housing costs are actually climbing; due to lack of inventory. I don’t trust the gov’t CPI; that shows inflation moderating. Not seeing the hustle-bustle today, Saturday, while out shopping; the roads were noticeably quiet for a Saturday in Charlotte, NC. The spot freight rates were so bad Fri-Sat-Sun; that’s why we stayed home! Not sure, if I were running Sonar, what data points I’d use as inputs; but they would not be CPI; but they would be points that reflect reality; such as banks indicating that consumers’ credit is maxed out; indicating trouble for retail, etc. I listened to your article; and, perhaps wrongly, feel that this is a push on behalf of legacy carriers to get shippers to lock into today’s rates, before they descend more. If I were a shipper, I would not bite, yet. I would off-load freight into the dismal spot market; putting additional pressure on contract rates; as many legacy carries themselves are teetering on edge; and “need” the contracts to survive via quantity of miles; since quality of miles will suck for the rest of 2024.