Why do carriers expect pricing momentum to continue into 2022?

Tony MulveyFreight Market Blog

Earnings season is here and the general theme across truckload carriers is carrying higher rate momentum into 2022.

Carriers have benefited from increased freight rates across the board, but not every carrier  experienced record revenue in the fourth quarter. Market conditions are still quite favorable for carriers, but driver retention and recruiting continue to be quite difficult, leading some carriers to experience a decline in total miles driven. 

Ultimately, understanding the general market conditions shows whether carriers are right to have an optimistic outlook on pricing in 2022.

FreightWaves SONAR: Outbound Tender Volume Index. 2021 (blue), 2020 (green) and 2019 (orange)

The Outbound Tender Volume Index (OTVI) measures freight demand through shippers’ requests for capacity. Throughout the fourth quarter, volumes were negative and didn’t experience the peak that was expected. Consumer spending was pulled forward, as evident by retail sales, which fell by 1.9% month-over-month (m/m) in December, but were still over 17% higher than 2020 levels.

Demand levels haven’t subsided; if anything they have intensified, especially when compared to 2021 levels. Currently, OTVI is back above the 15,000 mark, nearly 7% higher than it was this time last year. 

At the same time, the capacity front is slightly improved. The Outbound Tender Reject Index (OTRI), which is a measure of relative capacity in the market, is currently at 20.72%, 107 basis points (bps) below 2021 levels. In 2021, the severe winter storm that swept the country drove rejection rates to nearly 30% on a national level. OTRI has since retreated from the highs, but isn’t showing the signs of easing many expected, given rate increases over the past year.

FreightWaves SONAR. Truckstop.com’s 7-day average national spot rate (blue, right axis) and initially reported dry van contract rate per mile (orange, left axis)

Since the beginning of 2021, Truckstop.com’s national spot rate has increased by 32%, but it is important to note that Truckstop.com’s spot rates include fuel surcharges and other accessorials.

At the same time, the average dry van contract rate has increased by 19.7%, from $2.33/mi to $2.79/mi. Contract rates don’t include the fuel surcharge that spot rates include, but the increase is still modest compared to spot rates.

Why is this important?

When spot rates are elevated and capacity is tight, that means contract rates are put under inflationary pressure.

Spot rates have retreated slightly from the recent highs to start the year, but are still under pressure. Though it is likely that spot rates will continue to decline throughout the first quarter, that doesn’t mean securing capacity is any easier for shippers. Any drastic shock to the market, like the winter storm of 2021, could cause capacity to tighten rapidly, which would likely send spot rates further north.

Contract rates haven’t had the opportunity to keep up with spot rate increases over the past two years. Carrier compliance levels for contracted loads is still suffering as evident by OTRI being above 20%.

FreightWaves SONAR brings freight demand, truckload capacity and freight rates into one platform and allows for daily monitoring of market conditions. Given the current dynamics in the market with unabating freight demand, unseasonably tight truckload capacity and near-record rates, carriers are justified in expecting contract rate increases in 2022.

There are obviously factors that could slow the growth of rates, including a slowdown in freight demand or capacity flooding back into the market. Ultimately, carriers are in a solid position to maintain pricing power in the freight market

Interested in getting an edge during RFP season? FreightWaves is the nerve center of the global supply chain and SONAR is the global dashboard. The SONAR data platform offers the fastest and deepest set of freight market data on the planet. Benchmark, analyze, monitor and forecast everything that is happening around the logistics world with SONAR.