Photo: Jim Allen – FreightWaves
National reefer tender rejection rates (ROTRI) have consistently exceeded 14% since early October, a significant increase from the approximately 8% observed during the same period in 2023. This sustained rise indicates a tightening refrigerated truckload market, presenting challenges for transportation procurement as the “protect-from-freeze” season approaches.
Chart of the Week: OReefer Outbound Tender Reject Index, Van Outbound Tender Reject Index – USA SONAR: ROTRI.USA, VOTRI.USA
Tender rejection rates measure how often carriers decline load requests from contracted customers due to capacity limitations. Higher rates signify a carrier-favorable market where demand surpasses supply, increasing the value of their services. While interconnected, the reefer and dry van markets exhibit distinct patterns. National dry van rejection rates (VOTRI) generally correlate with reefer rates but at lower levels.
Historically, the ROTRI has trended higher than the VOTRI. For instance, in 2019, the ROTRI averaged over 15% compared to the VOTRI’s 5%. The gap widened further during the 2021 pandemic peak, with the ROTRI reaching nearly 40% and the VOTRI averaging 23%. However, the past two years have witnessed an unusually narrow gap, with both indices reaching historic lows in 2023, reflecting a loose truckload market. The ROTRI averaged 5.3% while the VOTRI was at 3.4%.
The volume disparity between dry van and reefer shipments contributes to this difference. Dry van shipments comprise 60-70% of the data, while refrigerated shipments represent only 10-20%. This smaller sample size makes the ROTRI inherently more volatile, explaining its muted response in 2022-2023.
A False Start in 2023?
The reefer market initially showed signs of tightening in 2023 due to regional disruptions in the Northwest and Midwest. Northwestern rejection rates approached 50% by late November. Meanwhile, Midwest reefer rejection rates, typically above 8% in the fall, surged to 13% around Christmas and during January’s arctic blast.
Given the Midwest’s larger contribution (35%) to the national average compared to the Northwest’s 5%, fluctuations in the Midwest exert a more significant influence on national trends. However, these initial signs of tightening proved temporary. Rejection rates plummeted to near-record lows in the spring as the market rebounded following warmer weather in February and March.
This year, while Northwestern rejection rates (ROTRI.URNW) are less pronounced, other U.S. regions are experiencing higher and more volatile rejection rates. This suggests a broader capacity crunch and a tightening market less dependent on seasonal factors.
Spot Market Dynamics
Despite rising rejection rates, significant inflationary pressure hasn’t materialized in the spot market. While national rate-per-mile averages can be influenced by longer hauls, sustained supply-demand imbalances typically become evident over time.
The Reefer Truckload Index (RTI), tracking average spot rates for refrigerated loads exceeding 250 miles, has displayed volatility but hasn’t sustained higher levels than those seen during the summer. Notably, the RTI hasn’t surpassed January’s weather-driven spike, even with two hurricanes making landfall this fall.
This absence of sustained upward pressure indicates that spot market demand for refrigerated shipments hasn’t consistently grown. Shippers aren’t relying on spot market sourcing at levels comparable to last January, instead leveraging existing carrier networks. However, securing refrigerated capacity in the contract market is proving more challenging. Reefer contract rates often fall below spot prices, diminishing the incentive for higher spot rates. Carriers are prioritizing seasonal spot freight without extensive negotiation.
Winter Outlook and Market Implications
Winter weather will likely dictate the intensity of this market shift. Reefer trailers, essential for temperature control and protection against freezing, play a critical role during the “protect-from-freeze” season. A particularly cold winter will likely sustain strong demand for reefer capacity.
While the van market isn’t tightening at the same pace as the reefer market, it will influence the duration of this capacity shift. The interplay between these two segments will be crucial in determining the overall transportation landscape in the coming months. The current dynamics suggest a more challenging environment for shippers, highlighting the need for proactive transportation strategies.
