Bracing for tighter truck capacity, shippers rebid contracts

In anticipation of a tighter truck freight market in 2025, some shippers have started making contract adjustments as pricing power begins to shift to carriers.

“We’re actually seeing price appreciation in contract rates as the spread between spot and contract is increasing,” said Ryan Grote, supply chain solution analyst at FreightWaves.

“Roughly 70% of freight moves under contract, and the fact that we’re already seeing those prices start to appreciate I think is another signal that the bottom of the recession is in the past, and we’re now in a tightening cycle.”

In fact, he said, “some shippers experiencing service degradation are already having to put out mini-bids and reprice some of their freight.”

Grote joined a panel with three FreightWaves colleagues – Mike Baudendistel, head of intermodal solutions; Tony Mulvey, research associate; and Zach Strickland, head of freight market intelligence – at a Thursday webinar analyzing exclusive SONAR freight market intelligence from the past year as a springboard for what carriers, shippers and brokers can expect to play out across the freight economy next year.

***SONAR expert panel (left to right): Baudendistel, Grote, Strickland, Mulvey***

A scan of SONAR’s Outbound Tender Reject Index (OTRI) over the past two years provides evidence that the freight recession has come to an end.

“Just looking at the direction of tender rejections, they really bottomed out in May of 2023 and have been trending higher, which you’ve seen throughout 2024,” Mulvey said.

“What really signals [the end of the freight recession] is when you look from this past September up to now, this steady trend of [the OTRI] moving higher and to the right. It doesn’t feel a whole lot different for transportation providers – a 5 to 6% (increase) is not significant – but it’s the fact that the OTRI is trending higher and breaking out from where it was a year ago.”

He warned that as freight market prices start to rise, “budgets can get thrown in disarray, and [logistics departments] are going to have to answer why that’s the case. So retailers should be budgeting for higher transportation costs.”

On the intermodal side, the high degree of imports has been the story this year, Baudendistel pointed out, with many U.S. ports breaking container volume records.

“There’s also recently been a surge of imports to avoid anticipated higher import tariffs,” Baudendistel said. “You’ve also seen the situation in the Red Sea lengthen supply chains [by having to detour around the Horn of Africa], and it doesn’t look like that will change anytime soon.

“It does seem like intermodal has taken a share from the truckload market, but a large part has been in specific trucking corridors such as LA to Chicago and LA to Dallas, which is very compatible with intermodal rail.”

Baudendistel also pointed out that while spot rates for ocean containers remain high, they should start to fall as new vessel capacity begins to enter the market.

The tariff question

How President-elect Donald Trump’s tariff regime will affect freight markets is an open question, but Mulvey sees cause for concern.

“I think there are some issues,” he said. “If you do get another round of inflation with tariffs, the one thing the Feds will do – the lever they can pull – is raise interest rates. Right now the Fed is cutting rates, which should help boost demand by freeing up capital, but if you do get another round of inflation, does that lead to elevated interest rates, killing demand to some degree?”

One reason for raising tariffs is to incentivize domestic manufacturing. “We’ve heard from a lot of shippers – the buzzwords of reindustrialization and nearshoring – and we’re absolutely having those conversations with them of wanting to bring the supply chain back as a hedge against any type of geopolitical risk,” said Grote.

“We’re seeing warehousing capacity and prices increase at the same time, both in expansion, which is telling you that there is this capital spending going toward building out warehousing capacity. So there’s a lot of shifting of supply chains, with the backdrop that geopolitical risk and relationships are changing.”

2025 hot takes

In the webinar’s wrap up, the panel gave “hot take” predictions for 2025:

Baudendistel: “Keep in mind that while there’s a lot of bullish sentiment out there, there are still some macroeconomic risks that we should not discount. Tariffs are likely to have inflationary impact on consumers that can reduce spending, which can affect dry van and intermodal rail. And Elon Musk heading the Department of Government Efficiency could reduce demand as well if they pull back too quickly. So there are some risks to demand.”

Grote: “Shippers that do not have a relationship with Mexican freight carriers should start building those, because I think the Mexican-U.S. trade lane is only going to continue to grow, and I think it’s going to impact more and more shipper supply chains. We’ve heard about the Mexico and Canada tariffs, but I think those are negotiating tactics so I think those relationships will continue to grow.”

Mulvey: “The broker transparency rule [recently proposed by regulators at the urging of small carriers]? It will not matter in 2025, because if spot rates go up, carriers won’t care about broker transparency. Brokers will feel margin compression, and the carrier will be making more money. This will be an afterthought until the cycle changes again.”

Strickland: “I get a sense that shippers, carriers and brokers should be ready for spring this year, because the home improvement and housing sector of the economy has been dormant the last few years, since the end of COVID. That sector, which has a huge influence in March and April, has the potential to wake up.”