Tender Rejection Rates Touch Double Digits Briefly

The trucking industry experienced a brief surge in tender rejection rates, with the Outbound Tender Reject Index (OTRI) touching double digits for the first time in more than two years. This spike, while short-lived, highlights the dynamic nature of the freight economy and the impact of capacity utilization on rates and industry profitability.



The timing of the holidays this year, with both Christmas and New Year's falling on a Wednesday, created increased operational challenges for shippers. This led to a significant drop in volumes, with the Outbound Tender Volume Index (OTVI) down over 31% in the past week. The index is a seven-day moving average, and holidays effectively create zero days in the moving average, amplifying the decline. This decline in volumes was more significant than in recent years, indicating a tightening capacity situation.



The decline in volumes, combined with the tightening capacity, led to a brief stint above the 10% tender rejection rate threshold. Tender rejection rates rose by 35 basis points to 9.69% over the past week, representing a more responsive market than the previous two holiday seasons. This spike, while not as extreme as in 2019, still indicates a tightening capacity situation.



The increase in rejection rates indicates that carriers were becoming more selective about the loads they were willing to accept, leading to a tightening of capacity in the market. As a result of this tightening, spot rates rose by roughly 10% nationally to $1.42 per mile, compensating for the lack of capacity and rising demand. This increase in spot rates, combined with the rise in tender rejections, suggests that capacity utilization in the trucking industry was increasing.

The increase in rejection rates was not uniform across all markets. Of the 135 freight markets tracked, only four experienced volume growth, while the majority of markets experienced declines in volume. This uneven distribution of volume growth and decline suggests that capacity utilization was also unevenly distributed, with some markets experiencing higher levels of capacity utilization than others.

In conclusion, the brief spike in tender rejection rates highlights the dynamic nature of the freight economy and the impact of capacity utilization on rates and industry profitability. The holiday-related operational challenges, combined with the tightening capacity, led to a brief stint above the 10% tender rejection rate threshold. This spike, while short-lived, indicates a tightening capacity situation and an increase in capacity utilization in the trucking industry. As the market continues to evolve, investors and industry participants should closely monitor tender rejection rates and capacity utilization to gauge the health of the industry and make informed decisions.