Freight market conditions are improving.
Let’s start with the FreightWaves SONAR Outbound Tender Rejection Index (OTRI). This measures the share of truckloads which can be turned down by trucking firms out there. It’s an anonymized measurement of midsize to large truckload carriers’ willingness to just accept the hundreds which can be offered. OTRI is the very best approach to measure supply and demand.
Tender rejections are at 4%, which is the best level in six months.
The FreightWaves SONAR Outbound Tender Volume Index (OTVI) measures electronic offers from shippers to truckload carriers for the transport of products.
OTVI has been increasing all year long; the large dips within the chart below are when holidays occurred. Over the past six months, volumes are up 12%.
For a lot of the 12 months, tender rejections didn’t reflect these higher volumes. This indicated that there was an excessive amount of capability out there — too many trucks chasing the available freight loads.
Nonetheless, that has modified prior to now month. Up to now 30 days, tender rejections are up 26%, while volumes are only up 1%.
Capability has been bleeding out of the market. Carriers large and small have been leaving the industry, meaning there are fewer trucks available to haul freight.
Trucking firms have different operating costs, but none of them can survive long on low rates. Throughout this 12 months, truckload spot rates have hovered between $1.50 and as high as $2.10 a mile. Meanwhile, the common breakeven cost per mile for truckload ranges from $1.56 to $1.90 per mile, in accordance with a recent J.P. Morgan study.
Combined with the low freight rates, trucking firms have been hurt by higher diesel prices.
What’s next?
Assuming that higher volumes remain persistent and capability continues to go away the market, higher freight rates are on the best way.
Shippers have enjoyed lower freight rates because the spring of 2022. Nonetheless, rates are cyclical and shippers should play defense now by locking in contract rates or moving to index-linked freight contracts.
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