Navigating the Shift: Understanding the Future of Freight Rates

Date:

Share post:

The freight industry is at a pivotal juncture, with post-pandemic pricing trends indicating a slow but inevitable shift away from rock-bottom long-term or contract rates. An analysis of the past six years, focusing on dry van contract rates (VCRPM1) and van tender rejection rates (VOTRI), reveals a telling correlation that could forecast the future of freight pricing. Tender rejection rates, a key measure of carrier compliance to cover freight under agreed-upon prices, often precede changes in the more sluggish contract rates. This dynamic suggests an approaching transition in the market, influenced by the tender rejection rates’ trajectory.

Understanding Tender Rejection Rates

Tender rejection rates reflect the percentage of freight requests (load tenders) that carriers decline, serving as a barometer for market tightness. Historically, rates below 5% signal a surplus of carrier capacity over demand, leading to falling contract rates. Conversely, rejection rates above 7%-8% typically herald rising rates due to tighter market conditions. This metric, especially as tracked by FreightWaves SONAR, leans towards larger shipper-to-carrier agreements, painting a broad picture of the freight market’s baseline dynamics.

Historical Cycles and Current Trends

The transportation market has cycled through four distinct phases over the last six years, each with unique characteristics:

  1. 2017-2018: A period of high rejection rates averaging above 17%, leading to a sharp increase in contract prices.
  2. 2019: A rebalancing year with rejection rates dropping below 5% due to a capacity correction following 2018’s rapid growth.
  3. Pandemic Era (2020-2022): Marked by unprecedented demand, rejection rates soared above 20%, and rates increased by 50%.
  4. Post-Pandemic Adjustment: Beginning in 2022, a correction phase saw contract rates decline rapidly, though this trend has recently decelerated.

Currently, rejection rates, after hitting a low in May of last year at around 2.5%, are on a gradual upward trend. This subtle yet steady increase, still within deflationary territory, hints at a potential rise above the 5% threshold within the next year, suggesting a tightening market.

Strategic Considerations for Market Participants

  • Carriers: The focus is on survival, navigating through the market’s ups and downs with agility.
  • Shippers: Positioned to manage risks, shippers hold significant control. Preparing in advance and maintaining service levels are key strategies, with diversified route guides and competitive rates being crucial in a tightening market.
  • Brokers/3PLs: Striking a balance between survival and risk management, brokers need to remain alert to market disruptions and align with customers adopting proactive strategies.

Success in this evolving market hinges on preparation and the ability to anticipate changes. The freight industry’s stakeholders must remain vigilant, drawing on historical data and current trends to make informed decisions. As the market teeters on the edge of another turning point, the wisdom of Louis Pasteur rings true: “Fortune favors the prepared mind.” Adapting to the market’s dynamics with foresight and flexibility will be key to navigating the impending rate rollercoaster turn.

Credits:

LEAVE A REPLY

Please enter your comment!
Please enter your name here

spot_img

Related articles

STG Logistics Recognized by Dow for Advancing Safety Practices in Logistics

STG Logistics has been recognized by Dow for its exemplary safety practices in logistics. The accolade highlights STG...

Port of Oakland Reports Solid Growth in May 2024 Container Volume

The Port of Oakland has reported a solid increase in container volume for May 2024, reflecting a positive...

Top 100 Container Ports: Navigating Disruptions

The American Journal of Transportation (AJOT) has published its annual ranking of the Top 100 Container Ports, focusing...

East Coast and Gulf Coast Ports Face Strike Threat as ILA Halts Labor Negotiations

he East Coast and Gulf Coast ports are under a looming threat of strikes after the International Longshoremen’s...