Reefer capacity begins to tighten; could van follow?

Chart of the Week: Reefer Outbound Tender Rejection Rate, Van Outbound Tender Rejection Rate – USA SONAR: ROTRI.USA, VOTRI.USA

The freight market is still reeling from the economic mess created by the COVID-19 pandemic, but reefer tender rejection rates have been on the rise since bottoming in late April around 3.8%—now sitting around 5.56%. Dry van rejection rates have yet to make a meaningful movement since bottoming around 2.6% in mid to late April. Could the increase in reefer tender rejection rates indicate the market is about to shift?

Tender rejection rates are an indication of carrier willingness or availability to service contracted agreements. When rejection rates increase, spot rates follow and depending on the length of time they remain elevated, contracted rates established in long term agreements will rise as well. “Reefer” is the colloquial term for refrigerated trailer, which specializes in hauling goods that require temperature control such as food and beverages that cannot exceed a certain temperature.

Reefer rejection rates averaged over 16% last year compared to van’s 5.5% rejection rate. Reefer volumes are much smaller in sample size than the van counterparts as most freight can be moved without temperature control, but this smaller size makes the sector much more volatile—hence the fact reefer rejection rates are starting to increase while capacity remains extremely loose for van loads.

Reefer activity tends to increase this time of year with multiple harvests occurring domestically in California and Florida. These loads are mainly moved on the spot market due to the inconsistent and erratic timing of the demand for equipment. These produce harvests can be some of the most disruptive events in the freight market due to the erratic nature of the timing and yield and low shelf life of the product. Produce cannot sit and wait for long periods of time once harvested.

Last year’s produce season out west was relatively mild in comparison to 2018. Truckload spot rates for produce shipments moving from Central and Southern California to points east were over 20% lower in 2019 according to the USDA. In mid-April spot rates plummeted when they are traditionally rising. They have recovered slightly since.

The average spot rate for produce truckloads and dry van truckloads are reasonably connected. Chart: SONAR – AGRATE.LAXCHI, DATVF.LAXDAL

The connection between the reefer and dry van market is not as well understood in the transportation space as the commodities that move on reefer trailers tend to be insulated niche movements. Looking at the average spot rate for produce from L.A. to Chicago and the spot rate for and freight moving from L.A. to Dallas, there is a clear connection in the timing and direction of the rate movement. This connection is driven by the overriding capacity conditions of the freight market. The connection is not one-to-one by any means, as small divergences like the one we are currently seeing today on the national rejection rates.

Only rarely do changes in reefer capacity lead shifts in the van market. Most of the time, the converse occurs seeing as van is the largest percentage of available equipment. The large numbers make them a better sample to judge overall market trends, but less valuable when measuring small isolated events.

In other words, reefer capacity is like the moon orbiting the Earth. They both exert influence on each other, but the Earth (van) carries more weight when measuring the for-hire trucking market.

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 for future reference.

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