Contract vs. Spot Rates - The Spread Widens

January 24, 2019

 

Analysis from our friend Dr. Jason Miller at Michigan State University: 

We see spot rates have cooled down to late 2017 levels. In contrast, the BLS PPI index has been heading solidly upward. Since the vast majority of truckload freight moves under contract, the BLS data is capturing contract rates. Consequently, what we see is that the spot market premium has eroded substantially in the past few months.

The implication: tender rejections are going to be a lot lower. 

 

*BLS-TL PPI - Bureau of Labor Statistics Producer Price Index

Broader implications:

 

[1]: Expect many brokers are going to be aggressive in their contract bids as is being reported since they may be able to find capacity on the spot market for cheap.
 

[2]: Expect shippers to be aggressive in their bids this year to claw back some of the rate increases they agreed to in 2018.
 

[3]: If the spot market weakens in 2019, shippers that locked in contracts in late 2018 are likely to start demanding rate concessions from their carriers or begin to move loads to the spot market.



 

Jason Miller, PhD
Assistant Professor of Logistics
Department of Supply Chain Management
Eli Broad College of Business
Michigan State University 

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