In this edition of “SONAR Indices & Insights,” the SONAR team describes how freight market participants can analyze contract shipping freight rates and get more clarity around annual rate increases and bids by using the contract rate per mile indices in FreightWaves SONAR, the freight forecasting platform from FreightWaves.
When freight market participants gain a complete understanding of shipping freight rates both in the spot and contracted freight market, they are able to get a more precise and certain outlook on what to expect in contracted freight pricing by seeing the correlation of what the spot freight market has on initial contract rates compared to the final contracted freight rates.
In this article, freight market participants will learn what indices are now in SONAR that contain the average base rate of contracted volumes on a per-mile basis, how freight market participants can use these contract freight rate per mile indices, and the high-level benefits of using these new contract rate indices to get a more complete understanding of shipping freight rates when conducting annual rate increases or preparing for annual contract freight bids.
There are eight total indices that provide the average base rates (no fuel or accessorial charges) of mostly contracted freight volumes. The indices are reported on a 14-day (Initial, 1) and 28-day (Final, F) lag on a national level. The indices have two sets each of the 4 shipping modes to include van, reefer, intermodal, and less than truckload (LTL) to aid freight market participants in getting clarity around annual bids or shipping freight rate increases. Van, reefer, and intermodal rates are expressed in a rate per mile, while LTL rates are expressed in a revenue per hundredweight (CWT) format.
As stated earlier, each mode has two tickers, one for the initial report, which has less than 50% of the total volume and another final report which has more than 90%. The tickers are listed in FreightWaves SONAR as follows:
The screenshot above shows the initial reporting of van contract rates per mile over the last year.
The screenshot above shows the final reporting of reefer contract rates per mile over the last year.
Average contract rates show trends developing in long-term pricing agreements to prepare freight market participants for annual bids or any increases in shipping freight rates. Unlike the spot freight market, contracted agreements have a longer cycle and are typically negotiated on an annual basis. While the spot market tends to lead to changes in the contracted realm, it can be difficult to see when and by how much these rates change in reaction to daily market fluctuations over time.
The contract rate per mile index is useful for taking some of the guesswork out of annual rate discussions. Contract tender data is useful in measuring how effective the current contract pricing is, but it can be difficult to translate that into a rate per mile or rev per hundredweight for LTL on a daily and annual basis. This data helps provide additional clarity around the relationship between spot (short-term) pricing and contract (long-term) pricing.
LTL carriers are largely blind when issuing general rate increases as the truckload spot market does not always correlate cleanly to LTL pricing as over 90% of all LTL pricing is long term agreements (12 months or more).
In turbulent times, freight market participants need certainty to stay ahead of the freight market and understand the impacts any current market may have on contract freight price in annual bids or shipping freight rates increases. The premier freight forecasting engine, FreightWaves SONAR, allows carriers to benchmark, analyze, monitor and forecast freight rates in both the spot and contract freight markets.
SONAR ensures more proactive responses to the market, provides correlations between several indices to guide decisions and imbues confidence into freight market participants looking to optimize annual contract freight bids or rate increases. Click the button below to get a demo of SONAR to see what the platform can do for you.