The last month has been like Mr. Toad’s Wild Ride for the freight market. Starting with the Trump tweet about increasing tariffs on Chinese goods another 15% in early May that caused a chasm to form in freight volumes, and now Roadcheck week keeping carriers off the roads as volumes surge coming out of the end of May. Ironically, those volumes dropped off as the annual inspection period began, but that did not stop rejection rates from increasing across the board: 96 of the 135 markets showed an increase in tender rejection rates on Tuesday.
In 2018 the annual inspection period performed by members of the Commercial Vehicle Safety Alliance (the FMCSA in the U.S.) occurred in a period where capacity was already tightening. Rejection rates increased a relatively mild –at the time– 96 basis points to 23.19% in the two days leading up to the June 5 start date. At the time, the increase was not considered too anomalous considering capacity had been tight all year.
2019 has not been anything like 2018 to this point. Rejection rates and spot rates have consistently fallen since the start of the year, save for a few minor hiccups around holidays. This is why the 51 basis point jump the national Outbound Tender Rejection Index took from June 2 to June 4 (this year’s start date) has much more significance. It represents a climb of 12% in carrier rejection versus 4.3% that occurred last year.
What is interesting about this climb is the fact that it occurred as volumes are recovering after a dismal showing in May to more seasonal levels, but still 2%-3% below last year’s volumes according to FreightWaves Outbound Tender Volume Index. Carriers appear to be more willing to shut down than haul freight. This action both makes sense and it doesn’t.
The way it makes sense: from a struggling carrier perspective, it may end up costing them more to shut down or pay fines than they will make hauling what has become super cheap freight. Drivers lose hours while getting inspected, costing them precious time on their hours-of-service, then they may get fined or put out of service if they do not pass, costing them even more time or money after the inspection.
The way it does not make sense: carriers lose money by shutting down, doubly so by missing potential elevated spot rates where they can potential double their margins while capacity is tight. Out-of-service (OOS) violations do not increase during the inspection period, last year OOS violations declined sequentially in June (89.6K) versus May (90.5K) according to the FMCSA.
Shippers and brokers do not win in this scenario either, because they pay unexpected premiums for capacity during this period after experiencing a historically stable market over the past few months. Unexpected volatility can cost millions of dollars, especially in a market that has been on cruise control.
Noble1
Real geniuses ,LOL ! Announcing roadchecks ??? Carriers et al can simply pull their truck(s) during the 72 hour blitz !
Why not simply do surprise visits at transport company yards regularly throughout the year and inspect their trucks unannounced ? And you need to do the same concerning ALL vehicles to be fair . If you’re going to do a roadcheck blitz , then “check” all vehicles ! Don’t discriminate !
In my humble opinion !