Chart of the Week: Spot to contract rate spread (excluding estimated fuel costs above $1.20/gal, Van Outbound Tender Rejection Index – USA SONAR: RATES12.USA, VOTRI.USA
The difference (spread) between dry van truckload spot and contract rates has risen to its most balanced level for the reason that holiday season last yr. While the weather has definitely played a job within the near term, there are long-term takeaways once we compare the spread to van tender rejection rates (VOTRI) — that are also on the rise.
Definitions
Contract rates are based on an ongoing agreement between a shipper and a transportation service provider comparable to a carrier or a 3PL during which the service provider agrees to maneuver freight in a given lane for a set rate . These agreements are likely to last for a yr but will be shorter and longer.
Spot rates, similar to many other commodities, are truckload rates negotiated on the spot and aren’t generally expected to be consistently adhered to by the requesting party. These are way more volatile and reflective of the present market conditions.
Spot rates are likely to average lower than contract rates in most lanes as many of the volume tends to lean toward third-party providers or brokerages scouring the nation for relatively inexpensive capability and carriers trying to search out backhaul loads or freight that moves their trucks into an area where contract customers have freight.
The speed spread, which is calculated by subtracting the common dry van contract rate from the common spot rate excluding estimated fuel costs comparable to a standard surcharge, has been historically low for nearly two years. Spot rates have averaged roughly 60 cents per mile lower than contract since May 2022.
For context, spot rates were 22 cents higher from July 2020 to February of 2022 — the pandemic era. Spot rates averaged about 24 cents lower than contract in 2019.
This data point ought to be viewed more as an indicator of market conditions than at pure face value. The values of the spread aren’t applicable to each lane within the country, fairly as more of an indicator of how aggressive corporations need to be to search out short-term and long-term truckload capability.
When the spread value is negative, capability is comparatively easy to search out. When it’s positive, it’s difficult.
The spot rate also tends to steer the contract rate by way of movement, which may result in short-term contractions around seasonal or temporary events just like the weather that influence capability’s availability. The present trend appears to have a mix of each long- and short-term influences.
Spot rates increased around the vacations as they typically do but had not quite fallen back before winter weather pushed them higher once more.
The above map shows markets where lanes were moving significantly higher (orange) or lower (blue) on a four-day rolling average as of Jan. 17. Looking into the background TRAC data that makes up the national average, many of the rate increases occurred within the Upper Midwest, where temperatures were within the negative degrees Fahrenheit.
Since then, spot rates haven’t retracted as quickly as some might need expected. Shippers having to play catch up and carriers’ networks being disrupted are the most important issues with weather events. The length of time it has taken to get better could also be a tell that the freight market is closer to supply-and-demand equilibrium than we predict.
Concerning the Chart of the Week
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