Freight market turnaround in 2024?
The freight market hit a low point on May 14 and has been gradually improving since then. This improvement is reflected in the outbound tender rejection index (OTRI), which measures the balance of supply and demand in the trucking industry by tracking the percentage of rejected truckload freight. Higher rejection rates suggest a shift in favor of trucking fleets.
The current data suggests a stronger quarter for motor carriers year over year, with tender rejections expected to surpass last year’s numbers by the end of the third quarter. This highlights that the market’s current conditions resemble those of 2019.
The Waterfall Theory of Freight suggests that larger carriers are the last to be affected by a slowdown and the first to witness a market recovery. Volumes have been strengthening throughout the year, indicating the potential for a decent peak season in the trucking market.
Despite these improvements, there is still over-capacity in the market, and this is expected to correct itself over the next few months. As capacity decreases and volumes increase, spot rates are likely to rise, benefiting carriers and affecting shippers negatively.
The spread between contract and spot rates, with the current spread being -$0.79, meaning it is cheaper to move freight using spot market carriers than contract carriers. This could pose challenges for freight brokerages, especially those that rely on the spread for revenue.
As spot rates increase and contract rates remain low, brokerages committed to the contract market may see their margins squeezed, potentially leading to financial difficulties for some.
Looking ahead to 2024, conditions for carriers are expected to improve in the second quarter, giving them an advantage in negotiations with shippers. Shippers are advised to benchmark their freight costs, lock in contract rates, or use index-linked contracts to manage rate and capacity risks.