On a recent episode of WHAT THE TRUCK?!?, Corey Klujsza, vice president of pricing and procurement strategy at RXO, joined host Timothy Dooner to talk about the Curve, the company’s latest spot market report and what the report means for the freight market.
The Curve, formerly known as the Coyote Curve, is an expanded version of the robust dataset that goes back over five freight cycles. As the dataset enters its sixth cycle with the added data from RXO, which acquired Coyote Logistics, Klujsza notes, “Now we get to stack up millions of transactional data on the RXO side, build this out and really start to curate this in ways that we haven’t seen before.”
Regarding RXO’s progress toward integrating the Curve, Klujsza spoke about how similar both cultures are: “It’s like looking in the mirror; the culture fits [and] everything is just there. It’s fantastic.” The ability to scale and use that to help customers lower their costs of purchased transportation through the two combined entities is the best of both worlds, Klujsza said.
The main topic of discussion was freight cycles and, in particular, the most recent fifth cycle, what made it unique and what impacts it had on the early stages of the current sixth cycle. The Curve’s dataset goes back to 2006 with its first freight cycle, while the fifth cycle began in Q1 2020 and ended in Q1 2024.
For Klujsza, the best way to describe the fifth cycle is “everything COVID.” While highs and lows in the freight business cycle are expected, early 2020 was unprecedented. “You can see that the peak in this cycle and the trough were unprecedented … . Going back to the previous cycles, the normal peak [was] somewhere around 30 or 35% on a year-over-year basis and the trough was somewhere closer to 20 to 25%. We peaked at 68% in cycle five and troughed around 38%.”
Klujsza notes that the extra volatility caused by COVID-included shifts from services to goods and the eventual realigning in early 2023 back to services was “without a doubt the most volatile cycle we’ve seen.”
Looking at the most recent Q3 release, Klujsza said that the fundamentals of the market have been changing over the past few years based on carrier exists, with approximately 20 of the past 22 months reporting a decrease in net carrier operating authorities. It wasn’t until Q2 2024 that “we saw ourselves climb out of the cycle.”
Entering Q3, RXO’s data shows transactional rate data about 5.8% to 6% higher year over year on the Curve. To add color to the freight climate, RXO also included in its data a proprietary truckload rate index of all-in rates. Looking at the additional data, rates in Q3 finished about 14% to 14.5% higher than back in 2015. “It’s an unprecedented level when you think about what we know about operating costs on the carrier side [and] interest costs for carrying new equipment. It’s just an unsustainable level, and we’ve seen it for a while.”
There is a consensus that the market fundamentals are changing beginning in Q2 2024 and will come out of the trough in Q3. The report itself noted the y/y spot rate curve should continue to rise heading toward a likely peak in 2025. It added, “Though continued carrier attrition will lay the foundation for increased tightness later in 2025, conditions will likely feel more like 2014 than 2021.”
On the contract front, the Q4 Truckload market forecast previewed in the episode added that despite contract rates taking a small dip in Q3, they are expected to resume an upward climb in Q4. There is an expectation that as the spot-to-contract divide widens, routing guides are likely to suffer as a result.
While the outlook is optimistic, Klujsza cautions that the big metric that will really push the market higher is the spot-to-contract spread, which continues to see spot rates move at a discount to the higher contract rates for the better part of the past two and a half years. The only instances of the spread being inverted, with spot rates higher than contract rates, was the Christmas season last year and the Fourth of July in 2024. The duration was also short. Klujsza noted of those two instances that they were only two weeks of the past two years.
For a sustained rally, all eyes are watching to see if spot rates can make a sustained rally to overtake contract rates. At the moment, progress is spot and contract rates reaching a form of parity. “We’re right at parity … but until it’s sustained for a couple weeks, maybe a quarter, that’s when we start to see the data really accelerate, and within four to six months, you start to see spot move [and] there’s some routing guide deterioration,” added Klujsza.
To learn more about RXO visit rxo.com.