Tender rejection data within the FreightWaves SONAR data platform shows that the freight market bottomed on May 14. Since then, conditions for carriers have slowly been improving.
SONAR’s outbound tender rejection index (OTRI) tracks the balance of supply and demand in trucking by measuring the proportion of truckload freight that’s rejected. In trucking, supply equates to the variety of trucks available in a marketplace for dispatch, while demand is the variety of loads tendered in that market.
OTRI data comes from the “tender” messages between shippers and motor carriers. Tender messages are requests for truckload capability by shippers within the contract freight market. A young rejection by a carrier tells a shipper that the carrier has an alternative choice for that truck (or trucks). Higher rejection rates mean that the availability/demand balance is swinging in favor of trucking fleets.
![](https://www.freightwaves.com/wp-content/uploads/2023/09/03/Screen-Shot-2023-09-03-at-6.21.06-PM-1200x523.png)
Current tender rejection data signals a stronger quarter yr over yr (y/y) for motor carriers. Tender rejections are on pace to surpass last yr’s number and may accomplish that by the top of the third quarter.
![](https://www.freightwaves.com/wp-content/uploads/2023/09/03/Screen-Shot-2023-09-03-at-6.21.13-PM-1200x515.png)
Tender rejections are also signaling that the present market is analogous to 2019. (Orange on this chart is 2019.)
![](https://www.freightwaves.com/wp-content/uploads/2023/09/03/Screen-Shot-2023-09-03-at-6.21.21-PM-1200x515.png)
Who wins?
The Waterfall Theory of Freight suggests the most important carriers are the last to be impacted by a slowdown and the primary to see the market come back. The Waterfall Theory of Freight is the foundational theory that tender rejection data is designed to watch.
![](https://www.freightwaves.com/wp-content/uploads/2023/09/03/Screen-Shot-2023-09-03-at-6.21.29-PM-1200x509.png)
As shown within the SONAR chart above, volumes have continued to strengthen all year long. This means that the trucking market could see a good peak season, providing some relief for motor carriers.
Despite the fact that conditions are improving, there continues to be over-capacity within the marketplace (too many trucks chasing too little freight). This case will proceed to correct itself over the following several months.
The chart below shows the variety of net additions of trucking firms available in the market (meaning it measures revocations of operating authority compared with newly established trucking firms). The chart is measuring the market in weeks; green is expansion, red is contraction.
![](https://www.freightwaves.com/wp-content/uploads/2023/09/03/Screen-Shot-2023-09-03-at-6.21.37-PM-1200x525.png)
As capability continues to correct, the freight rate cycle will begin to maneuver at a faster pace (perhaps later this yr; more likely late in the primary quarter of 2024). Rates will move higher. Generally speaking, this helps carriers and is detrimental to shippers.
When capability has declined sufficiently available in the market while volumes have increased to more robust levels, spot rates will increase.
![](https://www.freightwaves.com/wp-content/uploads/2023/09/03/Screen-Shot-2023-09-03-at-6.21.46-PM-1200x517.png)
The spread between contract and spot rates
Because the freight market comes out of the doldrums, shippers may pay higher prices to ship their freight in 2024. Nonetheless, the following stage of the freight cycle could also be much harder on freight brokerages than shippers. Many shippers have began to prefer asset-based carriers of their routing guides, which has meant lost volume for brokers.
Lower volume means lower revenue for brokers. Nonetheless, brokers also make their money on the “spread.” – i.e., the delta between contract and spot rates.
The spread is one other key measurement that will be present in SONAR.
![](https://www.freightwaves.com/wp-content/uploads/2023/09/03/Screen-Shot-2023-09-03-at-6.21.55-PM-1200x515.png)
Currently, the spread is -$0.79, meaning it’s $0.79 cheaper per mile (net of fuel) to maneuver a truckload of freight using a carrier from the spot market than it’s via a contract.
While the spread has narrowed, it continues to be near record levels.
The spread will tighten further as spot rates increase while contract rates (many renegotiated at lower levels starting within the spring of 2022) stay near their floor (although contract rates even have likely bottomed).
![](https://www.freightwaves.com/wp-content/uploads/2023/09/03/Screen-Shot-2023-09-03-at-6.22.04-PM-1200x518.png)
Trouble ahead for brokerages?
Which means freight brokers with freight committed within the contract market will see their margins squeezed.
That may lead to a few of the high-growth brokers that financed their growth through debt in a near-0% rate of interest environment fail.
These brokers tied their debt covenants to margins and can be in violation of those covenants. This might cause some brokerages to fail, as Surge Transportation did earlier this yr.
A digital freight brokerage founded in 2016 by Omar Singh and based in Jacksonville, Florida, Surge Transportation filed for Chapter 11 bankruptcy protection. Of its top 20 creditors, 16 are factoring firms that pay small carriers.
The outlook for 2024
Conditions for carriers could improve dramatically in Q2 2024; they usually could have the upper hand in negotiations with shippers at the moment.
After greater than 18+ tough months for a lot of carriers, they needs to be preparing for higher volume and rates. They need to proceed to right-size their businesses, cut costs where possible, and be able to offer volume and repair to current and prospective shipper customers.
What can shippers do because the market begins to show?
They need to prepare by benchmarking their freight costs against data, locking in contract rates, or using index-linked contracts to administer rate/capability risk.
FreightWaves is currently working with some two dozen shippers on freight rate indexing to assist them prepare for a tighter 2024 bid season.
The entire charts presented can be found on SONAR, the high-frequency freight market intelligence platform empowering businesses in the availability chain.
FreightWaves SONAR’s price, demand, and capability data spans across all modes to permit logistics leaders to benchmark, analyze, monitor, and forecast the worldwide physical economy.
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