Chart of the Week: Spot and contract rate (including fuel) – Chicago to Atlanta SONAR: Market Dashboard
The spread between truckload contract and spot rates has contracted significantly in one of the most densely traveled lanes in the U.S. — Chicago to Atlanta — according to the FreightWaves Trusted Rate Assessment Consortium (TRAC) and database of invoice data. It shows that while the domestic transportation market continues to be in an extremely oversupplied state, there are small signs that it is not as loose as it has been.
Transportation service providers continue to struggle in what has been an extremely competitive environment since Q2 of 2022. Spot rates plummeted in the spring last year from all-time highs, but contract rates, as is their nature, fell much more gradually.
The general rule is that contract rates follow spot rates as they are negotiated with a much slower cadence and are locked in place for longer periods of time, normally a year. There has been little indication from the spot market that contract rates will stop falling, but looking into smaller lane-level granularities, this is less true.
At a high level of aggregation, contract rates remain extremely elevated from a historical perspective in relation to spot rates. The chart above shows the average rate for dry van contract and spot loads moving more than 250 miles excluding fuel charges in the U.S. Contract rates are currently ~34% higher than spot rates.
To put this in perspective, contract rates averaged about 10-15% lower than spot rates in the historically tight late-2021 market and were around 15% higher than spot rates in the fall of 2019, when conditions were very loose. The current relationship paints a very soft picture.
The Chicago-to-Atlanta lane is considered a backbone lane in the domestic freight market. Thousands of loads a day move between these two markets. Both markets represent high levels of consumption, being large population centers, and production.
This lane should be one of the more well covered in the nation, yet the imbalance in the flow of freight has pushed spot rates gradually higher over the past four months. Contract rates (including fuel) were ~22% higher than spot rates at the beginning of July this past summer. At the end of October that gap had shrunk to 6%.
One of the big reasons for this is the growth in demand out of Chicago has outpaced Atlanta. Outbound tender volumes for the Chicago market averaged ~8% above summer levels in October, while Atlanta’s daily tender volumes were ~6% lower on average.
The reverse trip shows the inverse is also true, with spot rates falling off summer peak values moving from Atlanta to Chicago. These rates reflect a traditional headhaul and backhaul relationship emerging between these two markets. The headhaul, or outbound-heavy lane, is Chicago to Atlanta, while the backhaul, or inbound-heavy lane, is Atlanta to Chicago.
The point of all this is that even in a market of abundant capacity, imbalances are still occurring under the surface that are difficult to see. Some of these imbalances are temporary or seasonal, while others represent longer-term shifts in domestic freight patterns. Identifying these patterns and relationships are key to navigating the volatile freight market and forecasting for the next year.
Chicago’s outbound tender rejection rates have also increased (from under 2% to 3.3%) but not to a level that would be alarming to anyone. While most shippers do not see or feel this slow shift to a tighter environment, most know it is coming.
It does appear that both spot and rejection rates are starting to fall back in early November out of Chicago. With capacity still being abundant, imbalances like this tend to get ironed out. But this is definitely one more sign that the freight market’s loosest days may be in the past as capacity continues to exit at a record pace. And we can see it in action in this lane.
About the Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.
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