The green shoots of the commodity market fade towards October

Chart of the week: National Truckload Index (line-haul only), Van Outbound Bid Rejection Index – USA SONAR: NTIL.USA, VOTRI.USA

Spot rates excluding estimated total fuel cost (NTIL) have fallen 3% since early August. Van dry tender rejection rates (VOTRIs), which measure the percentage of loads that carriers cannot cover for their customers, average about 30 basis points lower. In other words, the market that appeared to be tightening in the summer reversed course in the last quarter.

For those less familiar with the US freight market, spot rates generally rise when it’s more difficult to find a truck to cover the haul and fall when it’s easier. The spot market is the Wild West of the truck market. It represents the most extreme levels of volatility and polarized edges of the industry.

Spot rates are very useful for short-term trends, but lose value when viewed over several years due to inflation and compounding. Carrier operating costs have risen more than 30% over the past five years, putting invisible upward pressure on fares. Unfortunately, for many carriers, they have been unable to pass on much of these costs due to a highly competitive environment. A wave of new entrants during the pandemic is largely to blame.

The Federal Motor Carrier Safety Administration’s carrier detail analysis of net changes in active operating authorities shows that there was a record 50% increase in newly registered property operating authorities from 2020 to mid-2022. This rate of growth has quadrupled the rate occurred in the market since 2018-19. The result was also a prolonged sharp decline in the market, which led to numerous carrier exits.

The pandemic demand bubble has been bursting for over two and a half years for the domestic transport market. More than 200 transport operators per week leave the net participant space. The vast majority of these exits are small fleets and owner-operators consisting of fewer than five trucks and most with less than three years of experience.

So far, the deterioration in capacity has resulted in only a few short-lived periods of mild market vulnerability.

Last year’s reefer truck market was the first to show signs of tightening. Spot (RTI) and rejection rates (ROTRI) spiked ahead of Labor Day and rode a roller coaster through January before falling back to record lows. The refrigeration market has since recovered in a more durable manner, but has stumbled in the past week.

The story continues

The dry van market, which accounts for most of the truck market’s activity, has also had its share of moments. The polar plunge of Arctic air in January pushed spot and rejection rates back to Christmas levels as shippers were stranded for several days.

Over the summer, spot and rejection rates rose as an unexpected influx of imports hit the West Coast, putting pressure on carrier networks. However, there has been sufficient weakening of the ability to recover and the market is now softer after showing increasing signs of vulnerability.

Hurricanes and strikes

Hurricane Helene made landfall as a major Category 4 storm, with much of its impact on infrastructure hitting inland markets in the Southeast.

Atlanta’s rejection rates fell in the lead up to the storm, while rejection rates rose. This could lead to some level of short-term disruption, but probably not a market opener like Harvey was in 2017.

The International Longshoremen’s Association strike also has some potential, depending on if it happens and for how long, but many shippers have been preparing for it for months.

Is this the new normal?

One possible piece of good news for carriers is that while the spot market has collapsed and many of the short-term disruptive events have faded, rejection rates continue to be higher over the course of a year. The likelihood of a sustained market shift this fall has decreased, but that doesn’t rule out the possibility of a strong shift in 2025.

Capacity declines at its fastest rate during winter. If this trend continues and the market remains soft during the holidays, the likelihood of a severe supply shock increases substantially.

This market is definitely not sustainable. It will change. The fact that capacity continues to come out at record levels tells you that supply is sinking toward demand on the curve. Timing is always the most difficult thing to predict and change will likely occur when many let their guard down.

And who can blame them, as this has been the longest and worst freight recession in modern times.

About the chart of the week

The FreightWaves Chart of the Week is a selection of charts from SONAR that provide an interesting data point to describe the state of 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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