Chart of the Week: Van Outbound Tender Reject Index, Reefer Outbound Tender Rejection Index – USA SONAR: VOTRI.USA, ROTRI.USA
Refrigerated (reefer) truckload rejection rates (ROTRI) jumped from under 4% at the top of July to over 10% in front of the Labor Day holiday, the best value since May of 2022. Late-summer harvest season and blistering temps across the central U.S. are likely the predominant culprits, but is that this an indication the truckload market is beginning to transition to a tighter state?
The domestic truckload market has been in a state of dramatic oversupply since early 2022, when demand plummeted coming out of the pandemic-era goods boom. National tender rejection rates, the speed at which carriers reject electronic load coverage requests from their customers, fell from averaging above 20% to below 4% over the course of about 13 months.
Refrigerated freight represents about 15-20% of the overall domestic contract freight market, with dry van occupying roughly 70%. The lower volume tends to make the ROTRI rather more volatile and in addition move at a better level than its van counterpart.
The narrow gap with the dry van rejection rates (VOTRI) from March through May was extremely unusual but very telling of just how oversupplied the refrigerated market was.
Unbalanced demand
Refrigerated capability is often much less available than dry van and skews toward smaller operators. National freight flows are extremely unbalanced for general commodity goods, but much more so for his or her reefer counterparts.
The above map represents the balance of refrigerated freight demand out and in (RHAUL) of every of the 135 markets. Red indicates more inbound than outbound demand over the past week, while blue indicates more outbound than inbound.
Lighter shades are indicative of a more balanced market. The darkest shades of blue are around the sides of the country while the eastern half, where many of the population lives, is essentially red.
Carriers make most of their money moving in a single direction and can charge below operating costs to maneuver back to the blue markets — something that’s greatly exacerbated by seasonal demand.
This can be a map of the demand balance for dry van (VHAUL) freight. The eastern half of the country has rather more blue while the western U.S. is essentially consumption-centric, except for Southern California.
This makes scaling a dry van network much easier, especially on the East Coast, than a refrigerated one. Most reefer operators serve a distinct segment available in the market and balance their networks with freight that enhances that area of interest. This model is less complicated to support with small regional operations.
The recent spike in reefer rejections is greater than likely brought on by seasonal aspects resembling harvests across the northern tier of the county. The Northwestern harvests, which include apples and potatoes, are underway and are greater than likely a predominant perpetrator of the recent disruption. The Midwest also has some seasonal pressure but is now receding.
This is just not the primary period of typical seasonal disruption of the yr. Spring harvests are typically more disruptive nationally than the autumn ones. This yr, spot and rejection rates were barely influenced. Taking a look at the trend line in dry van (NTI) and refrigerated spot rates, as reported by Truckstop.com, there is identical divergent behavior present since May.
Refrigerated operations favor smaller fleets
Small operators are most exposed to a loose truckload market. A scarcity of shopping for power on cost drivers like equipment and fuel paired with diminishing load options are inclined to push them into leasing on with larger fleets or exiting the space.
From this logic we’d expect the refrigerated sector to point out signs of tightening or directional shift sooner than the massive carrier-centric dry van space. The increasing sensitivity to disruption is an indication that capability exits are beginning to have an effect in the marketplace.
One other factor that is probably going helping drive rejection rates higher is falling contract rates. Long-term rates for reefer freight (RCRPM1) have dropped over 12% over the past yr. Lowering contract rates increases the likelihood that carriers cover spot freight when the spot market heats up. The refrigerated market is exposed to more seasonal periods where that is more likely than van on account of the freight being more seasonal.
The combination market remains to be very loose, with the reefer sector more likely to soften after this seasonal period passes. But refrigerated capability is showing early signs of tightening, which may very well be a number one indicator for things to come back for all of trucking — assuming there are not any major downward shifts in demand, which after all stays a really fragile assumption.
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