The Stockout: Refrigerated truckload costs set to rise as contract rates play catch-up

The biggest factor in reefer spot rates is the availability of capacity  which we calculate in our Reefer Outbound Tender Reject Index (ROTRI.USA). Currently, roughly 43% of tendered reefer loads are being rejected which indicates that reefer capacity is extremely tight on a national basis. Reefer capacity has been very tight, although stable, since the beginning of October. 

Another positive note for transportation providers is that new Class 8 truck orders have been at or above replacement levels now for three straight months with new orders in November at the highest level since August 2018. To go along with skyrocketing new truck orders, orders for reefer trailers have been elevated now for three months and near the highest level since October 2018. 

Demand is likely to be strong in 2021 as more employees remain working from home and lockdowns persist through at least 1Q21. The positive for transportation managers is that absolute capacity is coming back into the market, although contract rates are going to have to be negotiated higher for the time being. Reefer carriers, spot opportunities are likely to be abundant for the foreseeable future on the back of resilient volumes and tight capacity. 

Reefer spot volume volatility is emerging across the country. As I wrote in the last section, relative capacity is vitally important to spot rates but it is equally important for the direction of reefer spot volumes. The tighter the relative capacity, the more volatile the spot market. Over the past week, volatility on the Truckstop.com reefer load boards has exploded.

Eleven lanes across the country experienced an expansion of reefer spot volumes greater than 100% week-over-week (w/w). It is important to know that load boards are usually the place of last resort to get freight covered. In other words, when there are massive increases in load board freight on certain lanes brokers are having an extremely difficult time covering loads.

What should you do if you’re a transportation manager? Increase your lead times to help alleviate some of the stress of covering loads. Carriers, as I said in the last section, the picking is good for you to maximize yield. The current environment is likely to persist well into 2021 as capacity adjusts for demand.