Welcome to my new series: The Weekly Tender. Each week, I will highlight the stories and topics across transportation that are trending.
Truckload market experiences stronger peak season
As we approach the final days before Christmas, it’s becoming evident that the truckload market has experienced a peak season stronger than those of the past two years. While questions remain about whether this is merely a seasonal “Santa rally” or indicative of a more substantial market shift, there are signs pointing towards a recovery from the Great Freight Recession.
The bottom of the freight market appears to have occurred in May 2023, with the bottoming process playing out in the early months of the year. Signs of life were observed this past May and June, suggesting potential for a strong third quarter. However, the real surge didn’t materialize until after the election.
Rising rejection rates amid capacity exodus
Recent data from SONAR reveals an interesting trend in the truckload market. Despite a drop in overall freight volumes, rejection rates are on the rise, indicating a significant exodus of trucking capacity. The Contract Load Accepted Volume index (CLAV) shows carriers are accepting the same load volumes as they were in April 2023, near the theoretical floor of the recent recessionary period. However, rejection rates have more than doubled since that time.
This trend suggests that a substantial amount of supply has left and continues to leave the domestic truckload market. The gap between total tenders (OTVI) and accepted tenders (CLAV) is steadily growing, reflecting decreased availability of trucking capacity.
As noted in recent research, the rise in rejection rates is more than just a seasonal anomaly; it is a clear indicator of diminishing capacity within the truckload market. The Outbound Tender Reject Index (OTRI) has shown a marked increase since October, climbing from approximately 4.5% to 6.5% by mid-December. This pattern deviates from the typical seasonal fluctuations, where rejection rates either stabilize or decline heading into the Thanksgiving period. The discrepancy indicates that the current rise is not solely driven by demand-side dynamics.
What further distinguishes this trend is its contrast to previous years, such as 2019 and the current cycle, where rejection rates steadily rose during this season. Historically, rejection rates have shown a tendency to dip after the holiday season, but the persistence of heightened levels suggests ongoing difficulties in securing truckload capacity.
Contributing to this scenario is the ongoing net exit of carriers from the market, with over 350 net carrier exits per week being reported on average over the past two years, a historic phenomenon. This mass departure of carriers is translating into reduced availability of capacity, which in turn pushes rejection rates higher. The situation is compounded by the fact that, as freight volumes decrease, the demand for available trucking capacity remains competitive, pushing carriers to reject more tenders as they become more selective about the loads they accept.
In summary, the elevated rejection rates can be seen as a reflection of a tighter supply environment within the truckload market, marking a significant shift from the capacity surplus found in prior periods. As carriers continue to exit the market, rejection rates are likely to remain high, creating a more challenging landscape for shippers seeking to secure transportation solutions.
Shippers Respond to Tightening Market
In anticipation of a tighter truck freight market in 2025, some shippers have already begun making contract adjustments. There’s evidence of price appreciation in contract rates as the spread between spot and contract rates increases. Approximately 70% of freight moves under contract, and the fact that these prices are starting to appreciate signals that the bottom of the recession is in the past, and the market is now in a tightening cycle.
Some shippers experiencing service degradation are already issuing mini-bids and repricing some of their freight. This proactive approach suggests that logistics departments are preparing for potentially higher transportation costs in the coming year.
Truckload Spot Rates are Surging in Response to Tender Rejections
The latest data from the SONAR National Truckload Index (NTI) indicates a strong upswing in truckload spot rates, which have escalated from $2.38 to $2.52 per mile. This marks the highest level seen in nearly two years and has sparked a renewed focus on spot market dynamics. The increase in spot rates aligns with rising tender rejection rates, underscoring the tightening capacity in the truckload market.
With the Great Freight Recession over, trucking companies are now gaining pricing power. The heightened spot rates are not just a seasonal phenomenon but point towards a recalibration of market fundamentals. As more carriers reject tenders due to limited capacity, shippers are forced into the spot market, driving rates higher. The dynamic between spot and contractual rates remains pivotal, with the spread signaling an ongoing shift toward a carrier-driven market.
Furthermore, this climate poses challenges for shippers, as securing necessary capacity becomes increasingly difficult and costly. Experts suggest shippers should adjust their strategies, potentially entering more long-term contracts despite the premium, to mitigate risks associated with an unpredictable spot market. This proactive stance could prove vital in navigating the complex market landscape, further complicated by economic shifts and logistical challenges anticipated in the upcoming years.
Carrier Revenge Coming in 2025?
As the freight market navigates through a transitional phase marked by a tightening capacity and shifting power dynamics, the notion of “carrier revenge” has surged to the forefront. This concept refers to a potential scenario in which carriers, backed by growing market leverage, might respond unfavorably to shippers who have previously been difficult or demanding in their dealings.
With carriers gaining pricing power due to diminished capacity and rising rejection rates, there is a risk for shippers who have traditionally leveraged their volume to negotiate lower prices to face pushback. Carriers may prioritize engagements with more cooperative shippers, opting to exercise discretion over the loads they choose to accept. This preferential selection could result in unreliable service for those shippers perceived as challenging, forcing them to resort more frequently to the higher-cost spot market.
The prospect of carrier revenge highlights the importance for shippers to cultivate positive relationships and fair contract terms, particularly during periods of market stress. As noted in the current analysis, the ongoing trend towards greater carrier control could serve as a harbinger of compounding difficulties for shippers lacking strategic partnerships. Maintaining robust and mutually beneficial relationships with carriers may prove crucial in securing consistent service and avoiding the adversities associated with volatile spot market dependency.
This emerging dynamic underscores the need for shippers to reevaluate their strategies, potentially increasing their reliance on contract agreements despite the cost premium. Such efforts could mitigate risks associated with fluctuating market conditions and position them more favorably in the eyes of carriers navigating the evolving freight market landscape.
RXO Provides Context on the Current Market and Outlook
RXO’s data insights offer a comprehensive view of the trucking industry’s current state, shedding light on key market dynamics as we move towards 2025. Their transactional rate data reveals that rates in Q3 were approximately 5.8% to 6% higher year over year, indicating a trend of rising costs for carriers. Such increases underscore the unsustainable levels of operating costs due to rising interest rates and the expenses associated with new equipment.
The RXO Curve, a reconstructed dataset following RXO’s acquisition of Coyote Logistics, provides a historical perspective on market cycles, specifically highlighting how the current cycle compares to previous ones. The Curve illustrates that while earlier freight business cycles had peaks and troughs within predictable ranges, the recent cycle (peaking at 68% and troughed at 38% during COVID times) was unprecedented in its volatility, largely driven by pandemic-induced market shifts.
Analysts anticipate a tangible change in market fundamentals beginning in Q2 2024, with projections showing a continued rise in the year-over-year spot rate curve, likely peaking in 2025. Despite the recent dip, contract truckload rates are expected to climb anew in Q4. However, the disconnect between spot and contract rates remains pronounced, with spot rates consistently trailing behind contract rates, except for brief inversions observed during notable holiday seasons.
Ultimately, RXO’s data paints a picture of an industry at the cusp of transformation, with carrier attrition laying the groundwork for tighter market conditions reminiscent of 2014. The industry eagerly awaits a sustained rally where spot rates surpass contract rates, potentially signifying robust growing momentum — a scenario yet to be fully realized but well within the realm of possibility according to RXO’s analysis. This sustained growth could fuel routing guide deterioration, further stressing the necessity for strategic planning by shippers and carriers alike as they navigate this dynamic freight landscape.
Kal Freight Bankruptcy and Accusations of Fraud
In recent months, the trucking industry has been rocked by a series of high-profile bankruptcies, underscoring the increasingly challenging environment for carriers. Notably, Kal Freight, a fleet that had 580 power units filed for Chapter 11 bankruptcy, but says it plans to continue to operate.
The trucking firm is accused of double-pledging its trucks as collateral to secure financing from both U.S. and Canadian lenders.
Amidst these allegations, a California lawsuit filed by Daimler Finance revealed that Kal Freight had duplicated vehicle identification numbers on trucks and trailers, a deceptive tactic to manipulate financial backing. This scandal led to a significant shakeup in the company’s corporate governance, with a judge approving the addition of independent directors to its board. The move, intended to curtail the influence of owner Kalvinder Singh, was part of broader measures to stabilize the company after it filed for Chapter 11 bankruptcy with a staggering $325 million in long-term debt.
The case of Kal Freight is not unique in the industry. Cedar Trucking of West Virginia, a smaller operator with 22 power units, also filed for Chapter 11, citing financial distress amidst an environment beset by rising operational costs and market pressures.
Intermodal and Import Trends
The intermodal sector has seen notable developments, with long-haul rail intermodal volumes for both international and domestic size containers increasing during a time when volumes typically slow down. This unusual trend may be attributed to shippers using rail as “warehouses on wheels” for goods not immediately needed, taking advantage of slower transit times and potential tax benefits.
Import volumes remain at record highs relative to seasonality, as shippers prepare for potential tariff changes and other impacts from anticipated policy shifts under the incoming Trump administration.
Potential Longshoreman Strike Looms, Trump Endorses ILA in Resisting Automation
In a notable development impacting port operations and the broader supply chain, President-elect Donald Trump has publicly expressed his support for the International Longshoremen’s Association (ILA) amidst its contract standoff with port employers. This endorsement aligns with the union’s resistance to the introduction of port automation technologies, which they argue jeopardize union jobs.
The ILA, representing 45,000 dockworkers at 36 East and Gulf Coast ports, has been steadfast in its opposition to semi-automated container cranes, asserting that these innovations threaten to eliminate member jobs. Tensions have escalated since November, when negotiations for a new contract—with automation at the core of the dispute—came to a halt. Historically, the union has advocated for employment stability, citing the substantial profits accrued by port employers and foreign-based terminal operators. These companies, the union argues, should reinvest in hiring more dockworkers rather than automating operations.
Previously, the ILA managed to secure a significant 62% pay hike extended over six years, yet the issue of automation has remained unresolved. Terminal operators and shipping lines, under the auspices of the United States Maritime Alliance (USMX), contend that port automation is vital for enhancing competitiveness and efficiency in U.S. container hubs. They maintain that automation could in fact generate additional jobs required to manage increased container throughput despite the union’s contrary stance.
Trump’s post, following a meeting with ILA President Harold Daggett, reiterated the union’s position, emphasizing the primacy of American workers over machinery. Trump highlighted the importance of investing in human resources rather than infrastructure that could potentially lead to layoffs, an assertion resonating with his economic rhetoric of prioritizing American jobs.
As the January deadline for the extension’s expiration approaches, the prospect of a strike looms large. Shippers, wary of the disruption a strike might induce, are preemptively increasing imports to mitigate risk. This labor conflict, underscored by Trump’s intervention, underscores the broader tension between labor needs and technological advancement—a dynamic that continues to challenge labor relations and the evolution of port operations across the country.
C.H. Robinson’s Turn Around Appears to be Working
C.H. Robinson’s recent investor meeting has catalyzed substantial optimism among Wall Street supporters, reflected in the significant uptick of the company’s stock prices. Bolstered by strategic insights shared during the gathering, the positive response from investors is largely attributed to the company’s renewed focus on both technology enhancements and a concerted push back into the small and midsize business (SMB) market.
One of the key drivers outlined at the event was C.H. Robinson’s commitment to improving its technology stack within its North American Surface Transportation segment. Wells Fargo’s transportation research team anticipates that these tech advancements should elevate the operating margins for this segment back to an ambitious target of 40%, indicative of a robust, albeit not the pinnacle, market cycle. This technological leverage aims to balance human expertise with cutting-edge matching technology, enhancing service delivery and operational efficiency.
Another significant element of C.H. Robinson’s growth narrative is its strategic pivot back to targeting SMBs, reversing a previous de-emphasis that coincided with the influx of digital brokerage platforms. The company acknowledged past inadequacies in digital service offerings and indicated that these deficits led to a customer attrition to competitors. Presently, with improved digital capabilities, approximately 50% of bookings are fulfilled digitally, which signifies an important evolution from the 5% recorded in prior years.
Additionally, C.H. Robinson plans to capitalize on growth within specific verticals, namely energy, health care, retail, and automotive, where opportunities for expanding their total addressable market lie. This approach involves leveraging a more asset-based model through trailer pooling with partnered resources, enabling the company to present as an asset-heavy entity without incurring the associated costs.
C.H. Robinson’s growth strategies are not solely dependent on aggressive market expansion efforts. CEO Bozeman emphasized that the enhanced fiscal performance is not a mere result of favorable market conditions, but a product of strategic initiatives tailored to reclaim market share especially in the SMB segment. Importantly, the company’s forward-looking projections include generating between $350 million and $450 million in incremental operating income by 2026. These targets reflect not just cost-cutting measures but also an emphasis on capturing market growth and expanding operational margins through technology and service improvements.
Investor enthusiasm is buoyed further by the boost in C.H. Robinson’s Global Forwarding segment, attributed to ameliorated conditions in the ocean freight market. Such factors, coupled with human resource optimization strategies that integrate advanced tech tools, paint a promising picture of the company’s trajectory in the competitive logistics landscape.
Supersonic Flight Takes Off Again with Boom Technology
Boom Technology is rekindling the dream of supersonic flight with its Overture jet, marking a significant shift in the aviation industry. This move comes decades after the Concorde’s downfall, a venture often deemed “economically stillborn” due to its design choices. Boom’s CEO, Blake Scholl, has been a vocal advocate of reviving supersonic travel, believing that a transition to this speed is inevitable.
While the Concorde struggled to find its economic footing, Boom Technology is set on charting a new path with its 64-seat Overture, emphasizing a blend of speed and comfort for what it touts as an “all-premium supersonic experience.” Scholl’s vision extends beyond just the technical specifications; he is committed to addressing the minutiae that often plague modern air travel, aiming for an experience that is tranquil rather than tumultuous.
This innovative approach is backed by substantial venture capital, with major airlines like United, American, and Japan Airlines already placing preorders for the Overture jets. Scholl has highlighted the uniqueness of Boom Technology’s financing model, a critical aspect given the capital-intensive nature of bringing such an aircraft to fruition.
The success of Boom’s venture could signify a win for everyone involved—passengers, airlines, and the investors—the industry at large grappling with the concept of supersonic travel since the Concorde era. As the company steers towards scaling and significant growth, the aviation world watches to see how this ambitious project will impact the landscape of air travel.
Unraveling the Mystery Drones Over New Jersey
The skies over New Jersey have recently been filled with an air of mystery as numerous unidentified drones have made perplexing appearances across the state, sparking concern among local and state officials. These sightings have not only raised questions but have also drawn attention to the potential security implications and the limitations of current drone management and oversight.
Despite over 3,000 reported drone occurrences reviewed by federal investigators since November 18, clarity remains elusive. The mysterious drones, described by Assemblywoman Dawn Fantasia as large, durable, and capable of long-distance travel, do not align with those typically used by hobbyists. Their peculiar behavior includes coordinated flights with lights turned off and the ability to evade tracking by standard means. Such characteristics have further fueled anxieties regarding their purpose and origin.
Local authorities, including mayors from Morris County—the epicenter of these sightings—have criticized state responses, urging expedited information sharing and federal intervention. The limitations imposed by federal regulations, which restrict local law enforcement’s ability to counteract rogue drones, exacerbate the situation, leaving officials with few actionable options.
These incidents have placed the spotlight on the broader issue of drone regulation and the gap between existing capabilities and emerging aerial challenges. As calls for transparency and increased security measures echo through New Jersey’s legislative and civic halls, the drones serve as a potent reminder of the evolving complexity of airspace management in the modern era.
Looking Ahead to 2025
As we look towards 2025, several factors are expected to influence the freight market:
Potential interest rate cuts could lead to lower container prices in the U.S. and Europe.
Shipping overcapacity may drive down freight rates and container prices.
Geopolitical tensions and trade disruptions, including potential Trump tariffs, could exacerbate market volatility.
New trade routes, such as China-Mexico-U.S., may continue to grow for trans-Pacific commerce.
Increased operational costs from fuel prices, regulatory compliance, and trade tariffs will likely affect container traders and shipping rates.
Industry experts advise shippers to be prepared for potential volume surges and challenges in finding capacity. Locking in contract rates, even at higher levels, may be advisable to secure capacity in an increasingly volatile market.
As the freight market continues to evolve, stakeholders across the industry will need to remain agile, leveraging data and preparing for both likely and unforeseen scenarios to navigate the changing landscape successfully.
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