Chart of the Week: Spot and contract rate (including fuel) – Chicago to Atlanta SONAR: Market Dashboard
The spread between truckload contract and spot rates has contracted significantly in some of the densely traveled lanes within the U.S. — Chicago to Atlanta — in line with the FreightWaves Trusted Rate Assessment Consortium (TRAC) and database of invoice data. It shows that while the domestic transportation market continues to be in an especially oversupplied state, there are small signs that it is just not as loose because it has been.
Transportation service providers proceed to struggle in what has been an especially competitive environment since Q2 of 2022. Spot rates plummeted within the spring last 12 months from all-time highs, but contract rates, as is their nature, fell far more progressively.
The overall rule is that contract rates follow spot rates as they’re negotiated with a much slower cadence and are locked in place for longer periods of time, normally a 12 months. There was little indication from the spot market that contract rates will stop falling, but looking into smaller lane-level granularities, that is less true.
At a high level of aggregation, contract rates remain extremely elevated from a historical perspective in relation to identify rates. The chart above shows the common rate for dry van contract and spot loads moving greater than 250 miles excluding fuel charges within the U.S. Contract rates are currently ~34% higher than spot rates.
To place this in perspective, contract rates averaged about 10-15% lower than spot rates within the historically tight late-2021 market and were around 15% higher than spot rates in the autumn of 2019, when conditions were very loose. The present relationship paints a really soft picture.
The Chicago-to-Atlanta lane is taken into account a backbone lane within the domestic freight market. Hundreds of loads a day move between these two markets. Each markets represent high levels of consumption, being large population centers, and production.
This lane needs to be considered one of the more well covered within the nation, yet the imbalance within the flow of freight has pushed spot rates progressively higher over the past 4 months. Contract rates (including fuel) were ~22% higher than spot rates at the start of July this past summer. At the tip of October that gap had shrunk to six%.
One in every of the massive reasons for that is the expansion in demand out of Chicago has outpaced Atlanta. Outbound tender volumes for the Chicago market averaged ~8% above summer levels in October, while Atlanta’s every day tender volumes were ~6% lower on average.
The reverse trip shows the inverse can also be true, with spot rates falling off summer peak values moving from Atlanta to Chicago. These rates reflect a conventional headhaul and backhaul relationship emerging between these two markets. The headhaul, or outbound-heavy lane, is Chicago to Atlanta, while the backhaul, or inbound-heavy lane, is Atlanta to Chicago.
The purpose of all that is that even in a market of abundant capability, imbalances are still occurring under the surface which might be difficult to see. A few of these imbalances are temporary or seasonal, while others represent longer-term shifts in domestic freight patterns. Identifying these patterns and relationships are key to navigating the volatile freight market and forecasting for the following 12 months.
Chicago’s outbound tender rejection rates have also increased (from under 2% to three.3%) but to not a level that might be alarming to anyone. While most shippers don’t see or feel this slow shift to a tighter environment, most realize it is coming.
It does appear that each spot and rejection rates are beginning to fall back in early November out of Chicago. With capability still being abundant, imbalances like this are likely to get ironed out. But this is certainly yet one more sign that the freight market’s loosest days could also be prior to now as capability continues to exit at a record pace. And we will see it in motion on this lane.
In regards to the Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that gives an interesting data point to explain the state of the freight markets. A chart is chosen from hundreds of potential charts on SONAR to assist participants visualize the freight market in real time. Each week a Market Expert will post a chart, together with commentary, live to tell the tale the front page. After that, the Chart of the Week shall be archived on FreightWaves.com for future reference.
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