Truckload Contract Rates: Slowly Climbing Back

Over the past six months, the average dry van truckload contract rate has shown a slight increase of 1. 2%. This change might seem minor, but it's actually significant in the surface transportation market. Despite being down 2%-3% annually, these rates have grown since the second quarter of the year, even though conditions suggest they should be falling. These contract rates reflect long-term agreements between shippers and carriers, typically lasting more than three months. The pandemic saw a drop in the average contract length, with rates fluctuating sharply between June 2020 and early 2023. Before the pandemic, contracts usually lasted about a year. When capacity is scarce, truckload contracts can lose relevance because they don't guarantee capacity. Similarly, shippers can't promise a specific volume. This is crucial to understand in the truckload market, where the value of service can vary greatly. Tender rejection rates measure how well carriers follow their contracted agreements. These rates rise when capacity is tight, driving up rates as shippers compete for available trucks. A national rejection rate below 6%-7% indicates a loose market where trucks are easily found. In such conditions, contract rates tend to drop.Rejection rates have been creeping up since May 2023, recently surpassing 5%. While still low, this is higher than last year's rate of just over 3. 5%. Hurricanes and a strike by the International Longshoremen's Association have contributed to this increase, but it's not enough to significantly impact rates. Spot rates, excluding fuel costs, have also increased by 13% since May 2023, hinting at a rising market floor over the past 18 months. However, the gap between spot and contract rates is still too large to push long-term rates significantly higher. Zac Rogers, a supply chain management professor at Colorado State University, recently discussed the Logistics Managers' Index (LMI) on Freightonomics. The survey suggests supply chain professionals anticipate a strong shift in the transportation market next year. Shippers with low-end rates may face service failures and lost revenue if the market tightens. Capacity in the truckload sector is indeed shrinking, with active operating authorities managed by the Federal Motor Carrier Safety Administration dropping 5% over the past year. This trend is expected to accelerate in the coming months. The truckload market is shifting, albeit slower than many service providers would like.