Contract workloads and rates are higher than last year
Carriers that carry goods mainly under contract (rather than on the spot market) this year may have a better year than the first five months of 2021. According to the FreightWaves contract rate index per mile, long-term rates for standard vans increased by about 18% compared to the same period last year, while accepted cargo volumes for vans (CLAVV) were actually 1% higher . Does this mean that we should cancel the alarm about the decline in freight traffic?
In previous articles FreightWaves mentioned that the freight market is there slowing down quickly. This is largely due to the rapid deterioration of point and tender failures. In most cases, these are ahead of contract rates and freight volumes, which account for the bulk of domestic freight.
If you think about the available capacity in the form of a cup and the demand for this capacity as water, then the cup overflowed like a geyser, from August 2020 to March this year. There is still an overflow now, but it looks more like someone just forgot to turn off the tap.
In fact, the rates of rejected tenders are an indicator of this overflow of demand for trucks. The higher these values, the stronger the flow of water from the cup. During 2021, the national failure rate (OTRI) averaged more than 20% and is now just below 9%. So at what level are we starting to see a deterioration in contract freight?
Large fleets tend to have more serious contracts than smaller operations, and reports confirm that they have not seen significant erosion in their business – as market reporter Todd Maiden wrote. mid-May.
The Contract Load Volume Accepted Volume Index (CLAVV) measures only the accepted cargo volumes for contract cargo. This index did show some decline from last year in April, but much of that was due to Easter time, and it has since recovered to break-even.
Even if contract volumes fall into negative growth, as was the case in April, freight is moving at a base rate 10-15% higher than last year. This protects carriers from any strong blows to revenue growth.
Fuel costs are also transferred much more efficiently in the contract market due to the fact that they are governed by fuel surcharge tables. These tables help carriers bear any excessive fuel costs to their customers. This is much harder to manage in a deteriorating spot market where carriers are openly bidding with all-inclusive rates to win business.
Spot rates and deviation rates have stagnated over the past month, suggesting that at the moment we may have reached a minimum. If this persists, contract heavy carriers should report another strong quarter.
In fact, demand has not yet declined to such an extent that many large fleets have experienced a severe blow to their profits. The short-term outlook looks relatively favorable thanks to decent seasonal forecasts and still stable consumers. However, the economist should not know that this level of inflation is unstable, and there are signs of further decline in demand in the long run. The first sign will be a reduction in the contract load.
About the schedule of the week
The FreightWaves chart of the week is a selection of charts SANAR which provides interesting data to describe the state of freight markets. The chart is selected from thousands of potential charts SANAR to help participants visualize the freight market in real time. Each week a market expert will post a chart along with live comments on the first page. The Chart of the Week will then be archived on FreightWaves.com for further use.
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