Gravity is not pulling freight data back down to prior levels.
This week’s SONAR Pricing Power Index (PPI): 60 (unchanged) – Current freight market dynamics have changed relatively little since the last PPI report a week and a half ago. That’s a positive thing for carriers because it means that the spike in the tender rejection rates and spot rates was not just caused by winter storms, but instead, reflected tightening fundamentals. Winter Storm Fern may have just been the thing that caused carriers to realize they had pricing power that the market had been building towards.
What has changed in the past week, of course, is the Iran war and its impact on fuel prices. Fuel prices have risen, and the spread between wholesale and retail fuel prices has narrowed. A narrowing spread can negatively impact large carriers’ profitability levels because they typically buy at, or around, wholesale prices, and base their fuel surcharges on retail prices. Meanwhile, small carriers and owner-operators are disproportionately impacted negatively by high fuel prices because they generally run more uncompensated out-of-route miles. While the forward trajectory of fuel prices remains unclear, current trends could hasten a reduction in freight capacity, ultimately leading to a tighter freight market.
Three-month SONAR Pricing Power Index (PPI) Outlook: 70 (Up 5 points) – The main thing that’s changed regarding the 3-month freight market outlook since the last report was the introduction of Dalilah’s law, which, if passed, may further constrain effective capacity by tightening the requirements for which immigrants qualify for a Commercial Drivers’ License (CDL).
Tender rejection rates trend roughly sideways at a high level
The national tender rejection rate (2026 – white line) is refusing to come down much from after peaking during Winter Storm Fern, reflecting market tightness. (Chart: SONAR)
The national tender rejection is holding up well and is 27 basis points higher since the past PPI report a week and a half ago. Currently, the national tender rejection rate is 13.8%, which represents the behavior of carriers in response to tenders in the past seven days. It hit a mult-year high of 14.3% as Winter Storm Fern hit and defied most expectations by remaining near that elevated level in the several weeks that followed. Carriers had been rejecting 9.8% of tenders the week before Winter Storm Fern.
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 39.9% rejection rate, which likely reflects improvement in the industrial economy.
The SONAR Truckload Rejection Index is shown above for dry van (white), reefer (green), and flatbed (red) segments. (Chart: SONAR)
Spot and contract rates reflect a market that’s finally 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 increased $0.04/mile in the past week and a half to $2.77/mile. That latest upward movement likely just reflects the rise in diesel prices and the fuel-inclusive nature of spot rates. Before Winter Storm Fern, the average spot rate was around $2.55/mile. One year ago, the average rate was around $2.40/mile. Overall, changes in spot rates in the past month 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.
Spot rates rising faster and further than contract rates has led to a collapse in the spread between the two. That leads to pressure on brokers’ margins and is typically a leading indicator for further rising contract rates. (Chart: SONAR)
Contract rates are now being negotiated at higher levels. The above chart shows dry van contract rates, excluding fuel surcharges. (Chart: SONAR)
Demand has shown some signs of improvement, but it is still not tremendous
Truckload tender volume 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)
Total tender volumes in the past week are only slightly ahead of year-ago levels. Immediately following the major winter storms, they were trending higher by mid-single digits compared to last year. Tender volume might have been expected to be even more robust given that it includes both accepted and rejected tenders, and therefore, could include loads that were re-tendered after previously being rejected. The implication is that the actual volume of freight moved is still down year over year (consistent with accepted tenders, found in SONAR under CLAV.USA). Accordingly, tender volumes prior to the dates impacted by the storm were trending down about 4% year over year, and had been down about 6% on a two-year stack.
Demand metrics are mixed, but there is at least evidence of an improvement in the industrial economy based on the latest readings from the ISM and Industrial Production, including forward-looking orders and backlog metrics. In addition, responses from ISM survey respondents, which still include concerns over rising input costs, turned noticeably more positive than the prior month. Still, industrial headwinds remain in certain sectors, such as housing and automotive, that were called out by the Class I railroads on their fourth quarter earnings calls, contributing to cautious volume outlooks that guided to flattish overall volume for the year.
The consumer economy is showing mixed messages, with pessimistic sentiment surveys, affordability concerns, and slowing hiring that are at odds with resilient consumer spending. One way to perhaps reconcile those two things is data that shows that more Americans (up to about 6% per year) are making premature and/or hardship withdrawals from 401(k) accounts, propping up spending. I consider affordability pressures on the consumer to be the biggest risk to the PPI remaining above 50 this year.
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.
