The State of Freight webinars for several consecutive months have dealt with a new issue each month: a suddenly rising market, regulatory changes or now in the case of the March session, a war in Iran.

It has rocked the freight market if for no other reason than the cost of filling a truck has climbed dramatically. Has the strengthening freight market held up against that turmoil?

Here are five takeaways from Thursday’s March State of Freight webinar that can help answer that question:

Tender rejections are rising; what are they?

With tender rejections rising, as measured by the SONAR Tender Rejection Index (STRI). FreightWaves and SONAR CEO Craig Fuller began the webinar with a primer on just what that measures.

“The largest motor carrier set the tone for the entire market,” Fuller said. He called them “core carriers” that shippers will want to do business with “even when the market rates soften. You’re reluctant to pull freight from them, because when you need a lot of additional trucks, a surge of a project,you can rely upon the bigger guys easier than you can typically rely on a bunch of small guys.”

But beyond that, “messages flow from shippers to carriers,” expressing a desire to have freight moved. But carriers can reject that desire–more formally known as a tender–in what Fuller described as the “waterfall” theory of freight, as the tender moves down the chain before finding somebody willing to take the load.

Tender rejections, he said, “tell us whether or not the carrier is willing to take that load. Do they have the capacity to take it? Do they want to take it? There’s a lot of reasons that carriers will reject freight.”

Those are individual decisions. But taken as a whole, when the STRI is rising, “our fleets are communicating that they have something better to do with that truck. And therefore the more rejections, the more pricing power they gain, and the more optionality they have for something to do with that truck.”

A rejection is a sign that “they have demand somewhere else.” And that’s why the STVI is such a strong measure of capacity.

How unique is the current market?

The answer to that question: very.

Fuller noted comments made by Werner CEO Derek Leathers (NASDAQ: WERN). Leathers  said at a recent forum that current rejection rates north of 13% are “COVID-like,” harkening back to the craziest days of the pandemic when the STVI regularly exceeded 15% and at times climbed above 20% for the nation as a whole.

Fuller reviewed the slow and then rapid increase in the STVI, noting it had begun to tick up in August. “We started to see that tender rejection cook a little bit right before Labor Day,” he said..

But spot freight rates were moving faster than tender rejections, Fuller said, an unusual combination.  “What it was communicating to me was that some of those bottom feeders, some of those really cheap motor carriers that were being shut down by this immigration crackdown and compliance crackdown, were effectively being eliminated for the market,” Fuller said. “So if the lowest price carriers are being eliminated, your average rate is naturally going to go up. And now, if we fast forward a couple months later, we’ve seen rejection rates just continue to go hyperbolic relative to where they were.”

The upward move here in the third week of March is occurring at a time when “it’s typically a decent time of year, but not a great time of year,” Fuller said. That lends support to the idea that the current surge has a strong foundation, he added.

The surge in flatbed rates

On earlier State of Freight webinars, Fuller had spoken of the rise in flatbed rates. He revisited the issue in the latest edition.

The housing market, normally a big contributor to flatbed rates, is a “dog,” he said.

The strength in flatbed, he said, looks to be coming from the industrial Midwest. “It’s coming from old school machinery,”  Fuller said. “It strikes me that things like steel, aluminum and copper are what’s driving this market.”

It’s part of what he called an “energy buildout,” but it doesn’t have to do with drilling for oil.

“I’m talking about the power generation, the cooling systems going into data centers and the centers themselves,” he said. The list is endless: computer chips to actually power the data centers, steel racks to hold the miles of fiber, and so on. “And that is what is moving the market,” Fuller said.

A miserable time to be a shipper

That was a comment made in the banter between Fuller and Zack Strickland, SONAR director of freight market intelligence who presented the webinar with Fuller.

The two of them noted a confluence of several factors creating serious headwinds for shippers.

First of all, the demand from them is rising; the SONAR Tender Volume Index (STVI), which measures demand, has been increasing after either being flat or on a downward trajectory in the last year.

The rise in spot rates is leading to higher contract rates in the current bid cycle. As Fuller said, given market conditions, “they have to.”

Fuel surcharges are rising. Those are designed to be passed down to shippers and away from exposing carriers to higher fuel costs. Fuller said about 80% of freight moves on a truck with a fuel surcharge.

And the availability of trucks is down as a result of the federal crackdown on non-compliant carriers. Fuller conceded he was making a controversial statement, but “the non-regulated, non-compliant motor carriers provide better service and cheaper rates.” It’s better, he said, because “they can run 20 hours a day and they’ll run faster.” But it’s also illegal. And despite that, Fuller said “that’s exactly the way the market has been working.”

Rates & Fuel

SONAR’s key rate measurements are the NTIL and the NTI. The latter accounts for fuel costs; the former does not, as the L in its represents “linehaul only.” The NTI has risen recently as the NTIL has dropped slightly, reflecting the increased cost of diesel that is built into the NTI.

Fuller said “the purpose of the NTIL is to remove the freight volatility signals in fuel, because you can measure that independence.”

Both indices are back to about where they were at the start of 2023, when the great freight recession was swinging into full gear. Fuller said he expected to see new highs in both of them, “because we’re moving into the latter part of March and capacity continues to tighten.”

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