The next two weeks will be telling for the freight market.
This week’s SONAR Pricing Power Index (PPI): 40 – The market slightly favors shippers, in general. That is unchanged from last week.
Three-month SONAR Pricing Power Index Outlook: 50 – The market may approach equilibrium in three months. That rating is unchanged from last week.
Uneventful past week
(Chart: SONAR)
Maybe it’s the summer doldrums or the calm before a push to get goods out the door before the end of 2Q and the Fourth of July. The past week was one of few changes to freight data, with the average spot rate (using a method that excludes the impact of fuel) down just $0.01 to $1.70/mile and in line with the rate this time last year.
(Chart: SONAR)
Meanwhile, the tender rejection rate remained unchanged from the prior week at 5.81%. The national tender rejection rate is now 65 basis points above where it was at this time last year.
The next test will be the last week of June and the first week of July, which is normally a strong seasonal period as shippers rush to move goods to book revenue by the end of the second quarter, and many drivers take an extended break for the 4th of July. This year, that seasonally strong time is aligned with an expected surge in imports hitting US shores. Class I railroad BNSF and intermodal chassis provider Trac Intermodal have made comments to that effect and, in preparation, are relocating equipment to port cities.
Ocean Booking Volume Index for containers originating in China and terminating in the U.S. Booking surged following the 90-day delay on tariffs on Chinese imports, and is starting to translate to an increase in surface transportation demand. (Chart: SONAR Container Atlas)
Freight data has shown more sensitivity to disruptive events this year, such as holidays and International Roadcheck, than it has shown in the past two years. Therefore, it stands to reason that spot rates and tender rejection rates should be set to pick up again in the next two weeks.
The current 5.8% overall tender rejection rate breaks down to a 5.7% tender rejection rate for dry van, the largest segment, 11.1% for reefer, 15.1% for flatbed, and a 1.0% rejection rate for intermodal, a segment where rejections are uncommon. Relative to last week, each of those tender rejection rates declined slightly, except the generally volatile flatbed sector, which increased roughly 300 basis points week over week.
Freight market held back by weak volume despite increasing week over week
(Chart: SONAR)
The volume of truckload tenders, a measure of the frequency of shippers requesting that carriers pick up loads, remains well below year-ago levels, down 13.6% year over year, but it increased 2.3% week over week. Tender volume in the dry van sector increased 4.1% week over week, but remains down a similar 14.9% year over year. Tender volume is being held back by a combination of consumer willingness/ability to spend, degradation in the interest rate-sensitive sectors of the economy, and an increased usage of private and dedicated fleets, which reduces demand in the for-hire sector. Plus, rail intermodal has taken share from the highway in long-haul lanes that are compatible with rail intermodal networks.
Compared to this time last year, containerized intermodal volume (white line, inclusive of both international and domestic containers) held up much better than long-haul (greater than 800 miles) highway tenders (yellow line), suggesting that rail intermodal took market share from highway carriers. (Chart: SONAR)
English language requirements could disqualify large numbers of drivers
The change in net trucking authorities has been negative for most weeks during the past three years. Due to the lagged nature of when trucking authorities are removed from Carrier Details’ database, the above chart likely understates the number of carriers exiting the industry over the past two years. (Chart: SONAR)
The loose freight market of the past three years has largely been a result of overcapacity following the massive capacity increase during the pandemic. But, the persistent lack of carrier pricing power no longer appears to be an overcapacity issue, but rather an issue of lack of demand, as described above.
While overcapacity is arguably no longer the biggest issue, there are now foreseeable catalysts that are likely to cause a decline in capacity over what would be expected if driven only by market forces. In light of the Trump administration’s new guidance to enforce stricter labor, CDL, and English proficiency standards for truck drivers, there is greater potential for a crunch in blue-collar labor. That, in turn, could lead to a shortage of available capacity as tractors become harder to seat. While one analyst believes that 5%-15% of drivers could not pass the English language proficiency requirements, it’s currently very difficult to quantify the impact on capacity that may have because enforcement would vary widely, state by state. In addition, the FMCSA is attempting to crack down on fraud by requiring a more comprehensive identity verification process for registering new trucking authorities.
For a detail on the impact of regulatory changes on trucking capacity, I recommend watching last week’s webinar featuring Thomas Wasson, trucking expert and author of Loaded and Rolling at FreightWaves.
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.
