Party like it’s 2019
Outbound tender rejection rates, a measure of the percentage of truckload shipments tendered to carriers by shippers, have reached a record at 5.05%. For trucking, this will be a cause of mostly stress instead of celebration.
If you’re a shipper, you’re half tempted to pull out a bottle of champagne to celebrate. But given the stress of being a transportation planner for the past two years, nicotine and hard liquor may still win the day. We’re now in shipper territory and a return to what outbound load tender expectations mean.
For those unfamiliar with trucking, most high volume freight contract agreements involve a special clause where the shipper expects the carrier to accept a specific percentage of agreed-upon loads each week.
For example, when I worked at a major carrier, a large customer like Walmart might expect between 95% to 99% of all loads tendered must be accepted. For a customer like FedEx, which deals with expedited high-value shipments, you might as well turn on the auto electronic data interface and pray it doesn’t remember that 10% flex on load volumes built into the load negotiations.
Unfortunately for trucking, load volumes appear to be trending downward in solemn dignity as the spot market burns down with a fire that would make the emperor Nero smile, except there will be no fiddles to play for this tragedy. Both Rome and trucking spot markets are full of combustible materials. The kindling to truckload demand, of course, is consumer spending, so all eyes will be resting on us to continue our consumption spree and rid unlucky retailers of unwanted inventory. The medal for doing your civic economic duty can be found at TJ Maxx, as it finally arrived too late during the pandemic boom.
ATRI data: Crashes beget more crashes
The old adage goes: If at first you don’t succeed, try, try again. This is not good advice for professional drivers according to recent research from the American Transportation Research Institute (ATRI).
The ATRI’s latest crash predictor model corroborates the strong role of driver behaviors to future truck crashes. The 63-page report is full of useful information and identifies 25 different violations or convictions that increased the likelihood that drivers would be involved in future crashes.
What was notable was that out of that total, the ATRI notes that “five … increased future crash likelihood by over 100 percent. Simply having a previous crash increased a truck driver’s probability of having a future crash by 113 percent, 28.4 percent higher than previous ATRI crash predictor reports.”
The five deadly sins of trucking crashes include:
- Reckless driving violation.
- Failure to use/improper signal conviction.
- Prior crash.
- Failure to yield/right-of-way violation.
- Improper or erratic lane change conviction.
Like a Pringles chip commercial, the study shows that for crashes and bad behaviors, once you pop, you just can’t stop. This can prove costly for trucking companies since depending on who or what you hit, you could rack up millions of dollars in legal fees, fines or damages.
There is one bright spot to the report, as FreightWaves’ Alan Adler notes: “Apart from driver behavior, ATRI found that increased use of LED lights and disc brakes led to fewer violations for each mechanical area during inspections.”
Market update: Diesel swing fuels worry
This isn’t the first time I’ve mentioned fuel prices, but like yelling out “Beetlejuice” three times, eventually something interesting may happen.
The weekly average retail diesel prices published by the Department of Energy made its third-largest jump in history this week. Blame Columbus Day for the delayed release, but the gain of 38.8 cents per gallon shares the pedestal next to the other two major spikes since the beginning of Russia’s invasion of Ukraine.
What’s interesting with diesel is how the futures market is viewing the fuel compared to crude. Future expectations are bright for diesel, since Europeans can use it as a form of heating oil. In solidarity with their poor energy choices, I’ll not ask Santa for coal but instead ask him to donate it to a German power plant.
FreightWaves John Kinston notes: “Diesel is a distillate, as is heating oil. With October having arrived, it is difficult for stocks to build, given that many refineries are undergoing maintenance, which is normal for the autumn. The end result is that inventories are going into their season of greatest consumption at extremely low levels, which suggests that the spread against crude benchmarks is likely to remain high.”
For trucking context, diesel was around $2.35 per gallon just one year ago versus $5.18 currently.
FreightWaves SONAR spotlight: A tale of two rates; spot-to-contract spread remains
Summary: The rates SONAR ticker, a measure between national spot and contract dry van rates excluding fuel costs, continues to show a wide gulf. The spread of 81 cents currently favors spot market rates, with contract rates remaining strong in spite of decreased truckload demand. Despite the difference, shippers will often use this opportunity to seek further contract rate reductions through mini-bids or shorter request-for-proposal cycles. The falling spot rates put further pressure on both brokers and large asset-based carriers, who, if incumbents, will preemptively offer contract rate concessions to maintain dwindling load volumes. For brokers and carriers seeking to adjust their freight neworks, undercutting on rates to move up on the routing guide can be a winning strategy.
One industrial products shipper told Wolfe Research: “As capacity returned to the market, this shipper gradually reduced his spot exposure from over 20% at the peak of the cycle to around 10% currently. Over time, this shipper would like to further reduce his spot exposure below 5% of his over-the-road volumes. Cost savings appear to take a back seat to secured contractual capacity, so expect service levels and tender compliance to take center stage as shippers regain pricing power.”
The Routing Guide: Links from around the web
Morgan Stanley says jaw-dropping inventory levels a ‘key risk’ to retailers (FreightWaves)
Rail workers union rejects labor contract, renewing strike possibility (FreightWaves)
Freight rail’s Q3 dominated by labor contract uncertainties, service issues (FreightWaves)
Biden administration revising rule on independent contractors (FreightWaves)
Choked-up yards and trailer shortages box in America’s truckers (Wall Street Journal)
