Tender rejection rates are a leading indicator for spot rates.
This week’s SONAR Pricing Power Index (PPI): 60 (unchanged) – An overall tender rejection rate above 13% and an average spot rate of around $2.76/mile are consistent with the assertion that the freight market, overall, is now in carriers’ favor. If the PPI was based solely on reefer or flatbed, the rating would be in the 70 or 80 range, as there is more tightness in those specialized equipment types. Flatbed tender rates may surge higher if energy prices lead to more demand to move pipe and other oil field equipment. For all equipment types, it should be noted that regional carriers may be experiencing market conditions that vary widely from the national trends described in this report. Specifically, there has been tightness in the Midwest concurrent with looseness along the West Coast.
Three-month SONAR Pricing Power Index (PPI) Outlook: 70 (unchanged) – Nothing in the past week caused me to change the 3-month freight market outlook, which calls for a continuation of recent market dynamics made more evident by additional freight demand during the often freight-rich early summer period. If Dalilah’s law were to be passed, it would increase my PPI outlook since it would heavily constrain capacity. At the same time, I consider the potential for lackluster freight demand as the biggest risk to the outlook, as consumers grapple with higher energy prices on top of the broader cost-of-living challenges.
Tender rejection rates dip only slightly
The national tender rejection rate across all equipment types (2026 – white line) is staying elevated after surging during Winter Storm Fern. (Chart: SONAR)
The national tender rejection is down 20 basis points in the past week, which is a negligible change that gives further evidence to the view that the freight market has fundamentally shifted from the recent period of looseness that lasted almost four years. It hit a mult-year high of 14.3% in the middle of Winter Storm Fern and defied many industry participants’ expectations by remaining near that elevated level ever since. Carriers had been rejecting 9.8% of tenders the week before Winter Storm Fern. The fact that tender rejection rates and spot rates have remained elevated suggests that carriers didn’t fully realize that the market had shifted to their favor until the winter storms served as an illustrative catalyst.
As alluded to in the sub-header, tender rejection rates have remained above January levels across equipment types, but have been more pronounced for specialized sectors. The flatbed market appears especially tight with a 41.8% rejection rate, which likely reflects improvement in the industrial economy. That rate could go even higher if the recent surge in energy prices spurs oil field activity.
The SONAR Truckload Rejection Index is shown above for dry van (white), reefer (green), and flatbed (red) segments. (Chart: SONAR)
Spot and contract rates also reflect a market that’s in carriers’ favor
The average spot rate, displayed in the SONAR National Truckload Index (NTI.USA), surged following Winter Storm Fern, and has remained well above pre-storm levels. (Chart: SONAR)
The national average spot rate of $2.76/mile is down just a penny in the past week. Spot rates are inclusive of fuel surcharges, so one might have expected a substantial increase in spot rates in the past two weeks to reflect higher diesel costs. However, it takes longer for freight rates to catch up, relative to the speed of the traded energy markets. For comparison, before Winter Storm Fern, the average spot rate was around $2.55/mile, and one year ago, the average rate was around $2.40/mile. Overall, changes in spot rates in the six or seven weeks demonstrate that carriers have pricing power that they didn’t have in the past few years, outside of short-lived periods of temporary tightness such as holidays.
The national tender rejection rate (white) has shown to be a leading indicator for the national spot rate (red). (Chart: SONAR)
Spot rates rising faster and further than contract rates have led to a collapse in the spread between the two. That leads to pressure on brokers’ margins and suggests that contract rates will soon be renegotiated higher. (Chart: SONAR)
Contract rates, when presented at the national level, can be volatile from week to week due to changes in the mix. However, the trend is clear: they are now being negotiated at higher levels. The above chart shows dry van contract rates, excluding fuel surcharges. (Chart: SONAR)
Demand is still lacking
Total truckload tender volume, which includes freight that is tendered for the first time as well as freight that has been rejected and re-tendered, picked up in the days surrounding Winter Storm Fern, but has since retreated to levels that are only slightly positive year over year. (Chart: SONAR)
Underscoring a weak freight demand environment, the volume of accepted tenders this year has consistently been below levels of the past two years. (Chart: SONAR)
SONAR data shows that the actual volume of freight moved is down year over year (CLAV.USA) while just the volume of tenders (includes both tenders that are accepted and rejected) is higher. So, it appears that the higher tender volume is only a function of the tighter freight market (more rejections), which has been entirely driven by capacity leaving the market, with no help from demand.
About the SONAR PPI: The SONAR Pricing Power Index is a qualitative assessment of the balance of negotiating power between shippers and carriers on a scale of 0 to 100 using SONAR data and anecdotes from discussions with SONAR clients. The higher the number, the tighter the freight market and the more that pricing power favors carriers. A 50 represents a balanced market. While the SONAR PPI primarily pertains to the truckload sector, given its size, dynamics in other sectors, such as intermodal and ocean, are also considered.
