How stable are contract rates?

Chart of the Week:  Van Contract Charges, Nationwide Truckload Index (linehaul value much less gas over $1.20/gal) – USA SONAR: VCRPM1.USA, NTIL12.USA

Lengthy-term (contract) charges for dry van truckload transportation (VCRPM1) have remained basically flat over the previous 12 months, rising roughly 1% since July 2024. Brief-term spot charges  (NTIL12) that are naturally extra risky, have risen about 4% over the identical interval. With all of the discuss capability leaving the market at alarming charges, what does this stability in contract charges imply for 2026?

Within the brief time period, the reply is probably going nothing. Contracts are unlikely to maneuver larger quickly, as there’s at present no significant stress on them. Tender rejection charges stay inside acceptable ranges for many shippers, and whereas spot charges are much less dependable, they proceed to supply deep reductions for these keen to pursue them.

Seasonal stress will enhance over the subsequent few months as the vacation transport season ramps up, however it’s tough to see this translating into sturdy or sustained will increase in contract charges. Demand stays extraordinarily weak, with little proof of enchancment past hypothesis. There’s, nonetheless, one essential caveat.

Final week’s chart article illustrated that capability seems to be exiting the market quicker than demand is declining—one thing with little to no historic precedent over an prolonged interval. The first purpose is that this freight recession has lasted longer than any within the trendy period.

Within the chart above, each price traces drop sharply by most of 2022. The faster-moving spot price hit a flooring in Might 2023, whereas contract charges discovered a softer backside in 2024.

Though spot charges have been rising since 2023, they continue to be largely unprofitable. Contract charges have been extra resilient, suggesting they’re at present close to the bottom sustainable ranges for many carriers.

The most recent American Transportation Analysis Institute (ATRI) report on provider prices helps this, exhibiting that common working prices elevated 33% from 2019 to 2024. The contract price index (VCRPM1) is roughly 16% larger than its 2019 stage—that means the price of working has risen twice as quick because the charges the market has been keen to pay.

Moreover, current regulatory actions concentrating on non-domiciled and undocumented drivers have intensified. U.S. Division of Transportation Secretary Sean Duffy not too long ago acknowledged that he plans to crack down on “CDL mills” and the fleets that use them.

This elevated regulatory stress, which started within the spring, has solely not too long ago begun to have an effect on the speed atmosphere. Spot charges spiked unseasonably in early October amid stories that immigrant drivers have been avoiding the roads on account of stepped-up ICE enforcement.

All of this provides to an already difficult working atmosphere and may put shippers on excessive alert over the subsequent 12 months. Trucking demand has collapsed over the previous 12 months, but rejection and spot charges have remained resilient.

This dynamic means that if demand returns — and even stabilizes — the market may rapidly flip, pushing long-term charges larger once more. Shippers ought to deal with the standard of their provider companions fairly than simply value financial savings, because the charges negotiated in the present day are prone to turn out to be outdated earlier than the subsequent bid cycle in late 2026.

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