Chart for the week: National Truckload Index (Linehaul only), Outbound Truck Bids Rejection Index – USA Sonar: NTIL.USA, VOTRI.USA
Spot prices excluding the estimated total cost of fuel have fallen by 3% since the beginning of August. Dry truck bid rejection rates (VOTRI), which measure the percentage of loads that carriers cannot cover for their customers, average about 30 basis points lower. In other words, a market that seemed to be showing signs of tightening in the summer has reversed course over the past quarter.
For those less familiar with the U.S. freight market, spot rates generally rise when it is more difficult to find a truck to cover the freight and fall when it is easier. The spot market is the wild west of the trucking market. It represents the most extreme levels of volatility and polarizing edges of the industry.
Spot prices are very useful in looking at short-term trends but lose value when looking over several years due to inflation and mixing. Operating costs for airlines have increased by more than 30% over the past five years, putting invisible upward pressure on prices. Unfortunately for many carriers, they have not been able to bear many of these costs due to a highly competitive environment. The influx of new arrivals during the pandemic era is largely to blame.
A carrier detail analysis of net changes in active operating authorities for the Federal Motor Carrier Safety Administration shows that there was a record 50% growth in newly registered carrier operating operating authorities from 2020 to mid-2022. This growth rate was quadrupled from the rate that occurred in market from 2018 to 2019. The result of this was also a strong and prolonged decline in the market, which led to the exit of many carriers.
The pandemic demand bubble burst more than two and a half years ago in the domestic transportation market. More than 200 airlines per week leave the satellite network of participants. The vast majority of these exits are small fleets and owner-operators of fewer than five trucks and most have less than three years of experience.
So far, the decline in capacity has resulted in only a few short-term periods of minor market weakness.
Last year the refrigerated (reefer) trucking market was the first to show signs of tightening. Spot rates (RTI) and reject rates (ROTRI) jumped in front of Labor Day and rode a roller coaster in January before retreating to record lows. The refrigerant market has since rebounded in a more sustained manner but has faltered over the past week.
The dry van market, which represents the bulk of for-hire trucking market activity, has also had some moments. The polar decline of Arctic air in January pushed spot delivery and reject rates to Christmas levels as shippers ground to a halt for a few days.
Over the summer, spot delivery and rejection rates spiked as an unexpected influx of imports arrived on the West Coast, putting pressure on carrier networks. However, there has been enough of a slowdown in the ability to recover, and now the market is heading towards a decline after showing increasing signs of weakness.
Hurricanes and strikes
Hurricane Helen arrived as a major Category 4 storm, with much of its infrastructure impact hitting inland markets in the Southeast.
Atlanta’s outbound rejection rates declined in the face of the storm, while inbound rejection rates jumped. This may cause some level of short-term disruption, but probably not as market-breaking as Hurricane Harvey in 2017.
The International Longshoremen’s Association strike also has some potential depending on whether or not it happens and for how long, but many shipping companies have been preparing for this for several months.
Is this the new normal?
The potentially good news for MSPs is that despite the spot market collapsing and many near-term disruptive events fading, rejection rates are still trending higher year over year. The likelihood of a sustained market turnaround this fall has diminished, but that does not eliminate the possibility of a strong turnaround in 2025.
Capacity goes out at its fastest pace during the winter. If this trend continues and the market remains weak over the holidays, the probability of a severe supply shock increases significantly.
This market is certainly not sustainable. It will turn. The fact that capacity continues to exit at record levels indicates that supply is moving towards demand on the curve. Timing is always the most difficult thing to predict, and the shift is likely to occur when many lower their guard.
And who can blame them, because this was the longest and most severe shipping recession in modern times.
About the chart for the week
The FreightWaves chart for the week is a specific chart from Sonar Which provides an interesting data point to describe the state of shipping markets. The chart is chosen from thousands of possible charts available on Sonar To help participants visualize the freight market in real time. Each week, a market expert will post a chart, along with comments, directly on the front page. The week’s chart will then be archived on FreightWaves.com for future reference.
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