Chart of the Week: Van Outbound Tender Reject Index, Reefer Outbound Tender Rejection Index – USA SONAR: VOTRI.USA, ROTRI.USA
Refrigerated (reefer) truckload rejection rates (ROTRI) jumped from under 4% at the end of July to over 10% in front of the Labor Day holiday, the highest value since May of 2022. Late-summer harvest season and blistering temps across the central U.S. are likely the main culprits, but is this a sign the truckload market is starting to transition to a tighter state?
The domestic truckload market has been in a state of dramatic oversupply since early 2022, when demand plummeted coming out of the pandemic-era goods boom. National tender rejection rates, the rate at which carriers reject electronic load coverage requests from their customers, fell from averaging above 20% to below 4% over the course of about 13 months.
Refrigerated freight represents about 15-20% of the total domestic contract freight market, with dry van occupying roughly 70%. The lower volume tends to make the ROTRI much more volatile and also move at a higher level than its van counterpart.
The narrow gap with the dry van rejection rates (VOTRI) from March through May was extremely unusual but very telling of just how oversupplied the refrigerated market was.
Unbalanced demand
Refrigerated capacity is typically much less available than dry van and skews toward smaller operators. National freight flows are extremely unbalanced for general commodity goods, but even more so for their reefer counterparts.
The above map represents the balance of refrigerated freight demand in and out (RHAUL) of each of the 135 markets. Red indicates more inbound than outbound demand over the past week, while blue indicates more outbound than inbound.
Lighter shades are indicative of a more balanced market. The darkest shades of blue are around the edges of the country while the eastern half, where most of the population lives, is largely red.
Carriers make most of their money moving in one direction and will charge below operating costs to move back to the blue markets — something that is greatly exacerbated by seasonal demand.
This is a map of the demand balance for dry van (VHAUL) freight. The eastern half of the country has much more blue while the western U.S. is largely consumption-centric, aside from Southern California.
This makes scaling a dry van network much easier, especially on the East Coast, than a refrigerated one. Most reefer operators serve a niche in the market and balance their networks with freight that complements that niche. This model is easier to support with small regional operations.
The recent spike in reefer rejections is more than likely caused by seasonal factors such as harvests across the northern tier of the county. The Northwestern harvests, which include apples and potatoes, are underway and are more than likely a main culprit of the recent disruption. The Midwest also has some seasonal pressure but is now receding.
This is not the first period of typical seasonal disruption of the year. Spring harvests are typically more disruptive nationally than the fall ones. This year, spot and rejection rates were barely influenced. Looking at the trend line in dry van (NTI) and refrigerated spot rates, as reported by Truckstop.com, there is the same divergent behavior present since May.
Refrigerated operations favor smaller fleets
Small operators are most exposed to a loose truckload market. A lack of buying power on cost drivers like equipment and fuel paired with diminishing load options tend to push them into leasing on with larger fleets or exiting the space.
From this logic we would expect the refrigerated sector to show signs of tightening or directional shift earlier than the large carrier-centric dry van space. The increasing sensitivity to disruption is a sign that capacity exits are starting to have an impact on the market.
Another factor that is likely helping drive rejection rates higher is falling contract rates. Long-term rates for reefer freight (RCRPM1) have dropped over 12% over the past year. Lowering contract rates increases the likelihood that carriers cover spot freight when the spot market heats up. The refrigerated market is exposed to more seasonal periods where this is more likely than van due to the freight being more seasonal.
The aggregate market is still very loose, with the reefer sector likely to soften after this seasonal period passes. But refrigerated capacity is showing early signs of tightening, which could be a leading indicator for things to come for all of trucking — assuming there are no major downward shifts in demand, which of course remains a very fragile assumption.
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