Freight Market Conditions Signal Positive Shift as Rejections and Volumes Rise

Latest News / By Manifest Global Logistics

Published August 31, 2023

The freight industry is undergoing a notable transformation, with recent data pointing toward improving market conditions. A closer look at key indicators reveals significant shifts in supply and demand dynamics, shedding light on potential changes in freight rates and the broader landscape.

One crucial metric, the FreightWaves SONAR Outbound Tender Rejection Index (OTRI), serves as a reliable barometer for assessing supply and demand dynamics within the market. The OTRI gauges the percentage of truckloads that carriers decline, offering insights into their willingness to accept available loads. Currently, tender rejections stand at 4%, marking a six-month high. This suggests that carriers are becoming more selective about the loads they accept, indicative of tightening capacity and increased demand.

Another influential measure, the FreightWaves SONAR Outbound Tender Volume Index (OTVI), gauges the electronic offers extended by shippers to truckload carriers for transporting goods. The OTVI exhibits a clear upward trajectory over the course of the year, with occasional dips corresponding to holidays. In the past six months alone, volumes have surged by 12%, signaling a consistent uptick in the movement of goods.

An interesting trend emerges when comparing tender rejections with volume increases. Throughout most of the year, tender rejections did not align with heightened volumes, suggesting an excess of capacity. This implied an imbalance with more trucks available for hauling freight than the demand necessitated.

However, this scenario has shifted in recent weeks. Over the past month, tender rejections have surged by 26%, while volume growth has been relatively modest at just 1%. This shift indicates a reduction in capacity as carriers, both large and small, exit the industry. The resulting shortage of available trucks has the potential to lead to more favorable conditions for carriers, which may translate into higher freight rates.

Source: FreightWaves SONAR

Trucking companies have faced considerable challenges this year due to a combination of low freight rates and rising diesel prices. While truckload spot rates have oscillated between $1.50 and $2.10 per mile, the average breakeven cost per mile for truckload operations ranges from $1.56 to $1.90 according to a study by J.P. Morgan. The impact of these factors has prompted some carriers to reconsider their operations and exit the market.

Looking ahead, several factors suggest that higher freight rates are a likely outcome. If current trends of increased volumes and diminishing capacity persist, carriers could find themselves in a more advantageous position to negotiate favorable rates. Shippers, who have enjoyed lower freight rates since 2022, should consider proactive strategies. This includes securing contract rates or exploring index-linked freight contracts to mitigate potential rate fluctuations.

In conclusion, the evolving freight market underscores the intricate interplay between supply, demand, and rates. As carriers respond to changing conditions, stakeholders across the industry must remain vigilant, adapt their strategies, and position themselves to navigate the cyclical nature of the freight landscape.