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Carriers will become own worst enemy as demand declines

Truckload contract rates have slowed decline despite waning demand

Photo: Jim Allen - FreightWaves

Chart of the Week: Van Contract Rate Initial Report, Outbound Tender Volume Index – USA SONAR: VCRPM1.USA, OTVI.USA

Dry van truckload contract rates have fallen about 9% since the start of the summer but have slowed their rate of descent this fall, according to FreightWaves’ Van Contract Initial Report Index (VCRPM1), which is based on the linehaul-only portion of freight invoices. 

Is this a sign that shippers will not be aggressively peeling back the past two years of rate increases?

Dry van contract rates are still more than 35% higher than they were in June of 2020 but are essentially flat from a year-over-year (y/y) perspective. Contract rates “peaked” in June but were essentially flat from early March into July.

The pandemic-era tightness that began mid-2020 started an increasing trend of shorter cycle bids (aka mini-bids), which allowed contract rates to move faster than they historically have. Before 2020, the average bid cycle for shippers was around 12 months, meaning contract rates did not have strong fluctuations throughout the year. 

The big question is how motivated or cognizant will shippers be as a sharp drop in demand has made capacity more easily attainable. The Outbound Tender Volume Index (OTVI) measures the total tenders or requests from shippers to carriers for capacity. Those requests are down 25% y/y.   


The truckload spot market responded quickly in March, with the National Truckload Index (NTI) falling 14% over a 61-day period. With spot rates being negotiated daily, they are faster to respond to changes in the supply and demand conditions of the market. 

Shippers can get about a 24% discount on the spot market when sourcing capacity on average. This is not a sustainable relationship over time as contracts will move toward the spot market. For context, the spot market was offering a 12% discount in late October 2019 — widely considered a soft (deflationary rate) environment. 

But in the near term there may be some hope for carriers as the contract market stalls. Why would this slowing occur? 

Shifting concerns

Transportation is not the epicenter of the shipper universe any longer. Concerns for capacity have shifted to bloated inventories and demand forecasts. Getting these corrected has a greater potential impact on shippers’ bottom lines. 

Bids take a lot of time and energy. Mini-bids do not mean shippers send out their entire network for pricing. These generally target the most problematic sections, which makes sense as the main goal is to save time and energy that results in higher costs. Now that the smoke is clearing from a capacity standpoint, they can catch their breath and reform strategy. 

Shippers are also not vindictive entities wanting to drive carriers from the marketplace. That would be counterproductive. The ones with the best cost controls are typically those with the best-standing relationships with their partners. Most of them understand cost inflation has impacted everyone and is not quite fully baked. Bidding carriers below their break-even point does the shipper no good in the long run. 

The truth is there is simply not a lot of bid implementation activity this time of the year. Mini-bids are largely a mechanism of desperation and not a way of life. Larger, less frequent stair steps will probably become the defining look of the contract rate index.

The problem that arises from the carriers’ side now is they are competing for a smaller amount of freight in what may become a desperate environment. This will be what ultimately drives contracts lower … and they will go lower. 

About the Chart of the Week

The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.

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6 Comments

  1. Maria O Luczyk

    From what I am presently facing and never seen before; the only ones suffering financially during this terrible time are the small carriers like myself; like mentioned by other comments cost of running a small carrier business with inconsiderate high rising diesel prices/ Tolls/ maintenance and high commercial insurance premiums and driver pay & other government trucking taxes; we are not making a profit; we are basically loosing money. Ridiculous declining freight rates are not compensating all the expenses we have. It is basically harming and destroying all the hard work and putting us out of business soon. Brokers and Shippers don’t have to pay any of that. We the carriers “the small guys” are facing awful financial difficulties. Due to the ridiculous low rates while diesel continues to increase record high; carriers like myself are not making ends meet. There’s no way to keep up with any of this unfairness. In summary; the carriers have to pay ALL the operation expenses and the compensation we get is not enough to keep up. Basically whatever is going on? who do we blame? Government/ Shippers/ Brokers? Basically the FMCSA should have only issued Motor Carrier Authorities to large trucking companies and not smaller carriers who get no respect in terms of descent compensation for hauling brokered loads. At this point; we don’t even know if brokers are under paid by Shippers and unable to pay fair rates to carriers like myself. Not sure if these Mega Trucking companies are experiencing the financial deficit that I am going through as a small carrier. This whole small carrier operation is just not fair! We pay for all the cost of moving freight and the compensation / profit keeps dropping each week; and no one says or does anything.

  2. Paige

    Quite frankly the rates haven’t increased enough to not only compensate for the exponential increase in the cost of operating a truck, but just general life expenses. Specifically in Washington state, our property costs for our truck yard have literally doubled in the last two years, that’s not even including maintenance or extra security systems or staff, it’s simply our rent of our facility. Shops are not only booked weeks or even months out, but parts are backordered, the cost of those parts has also increased, labor is lower quality and higher cost as well. Like others have mentioned, the percentage of cost increase for carriers, especially small carriers, is far higher than the percentage that rates have increased. Personally, working in the drayage industry, we face more and more issues year over year and the increase in our rates doesn’t come remotely close to aligning with any of those factors. Any carriers that are agreeing to haul freight at, or even close to, the target rates I see daily are only able to do so by cutting corners, whether that be operating illegally in some aspect, not maintaining equipment or having low quality drivers. Then again, corporations don’t care about things like safety if it saves them money, but eventually it will push plenty of quality, small carriers out of business if it continues this way.

  3. Nunya Bidness

    Freightwaves could care less about brokers and small carriers. They are in bed with the mega carriers, period. Their articles are always spun with a slant to the Mega carrier side of the industry. I’ve got a simple question, if we have such a serious driver shortage, why are the rates tanking? Seems to me that rates drop as a result of excess capacity. If there is too much capacity, isn’t it logical that there are too many trucks with drivers in them than there is freight?

  4. Frank

    Surprisely Freightwaves never look deep into the brokers side or talk about how the inflation is not catching up.with the freight rates, if regular Americans are paying more at the retail stores for food and general merchandise because energy is costing more such as diesel at the pump, how come the rates are not reflecting or catching up with the inflation. Look into brokers Freightwaves it seems like the trucking industry is always taking the losses regardless of the economy. .

  5. Stephen Webster

    A lot of truck drivers are now getting $30hr plus medical and overtime that work as cross border or container port drivers. With higher rent and cost of living those paying less are going to want to bring in foreign ( student drivers) and will continue to push rates down and good owner ops and trucking companies out of business

  6. Rey Diaz

    If the cost of everything is rising of course freighter will increase the price of the service….it is very hard nowadays to keep a long hour driver employ at the average $32,60 x hrs + 1 1/2 overtime that most of the driver has to put at least 13hrs a day shift ….to cover that pluss the price of Diesel average $5.50 a gallon , pluss price of parts , maintenance , repairs , DOT demands , and on top of that ad the ridiculous cost of commercial insurance and liability….go figure if the cost of freight/loads will put most of us in an equity position to keep operating and service in the road today ….
    Keep it up Americans….This Government is cornering us in a very tough spots with a the nonsense laws , if we don’t stand up and stop them ….this beutifull country will be destroyed

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Zach Strickland, FW Market Expert & Market Analyst

Zach Strickland, the “Sultan of SONAR,” curates the weekly market update. Zach is also one of FreightWaves’ Market Experts. With a degree in Finance, Strickland spent the early part of his career in banking before transitioning to transportation in various roles and segments, such as truckload and LTL. He has over 13 years of transportation experience, specializing in data, pricing, and analytics.