Chart of the Week: Van Contract Rate Index, National Truckload Index less estimated fuel over $1.20/gal – USA SONAR: VCRPM1.USA, NTIL12.USA
Trucking rates increasing in response to the latest SCOTUS ruling — which allows brokers to be held liable in injury cases caused by carriers they hire — is the easy short answer. But rates are already increasing due to the mass drawdown in capacity resulting from a multi-year freight market recession. So does this ruling change the already existing trend?
Contract rates based on SONAR’s invoice data (VCRPM1) have already shown a ~10% rise since April of last year. It is important to note that this index captures not only permanent contract changes, but also the implied increase in spending due to route guide compliance deterioration.
As primary carriers reject loads, shippers drop to their secondary or deeper providers, who typically carry higher costs. This is still considered contract freight since a long-term agreement exists.
So even while rates haven’t increased 10% on paper with their primary providers, shippers’ costs have already increased in payables.
Spot rates, which have risen ~35–40% y/y already, are the most exposed segment to the recent ruling, largely because spot rates are driven by 3PLs and freight brokerage negotiations. The TRAC data underlying the NTIL12 in the above chart is entirely brokerage data.
The recent Supreme Court ruling in Montgomery v. Caribe Transport II, LLC essentially allows accident victims to sue freight brokers who hire the carriers involved. Previously, brokerages were not required to carry liability coverage beyond a $75,000 bond covering payment defaults. Asset-based carriers are required to carry $1 million in auto liability and $100,000 in cargo coverage per load. Brokers will now need to work with insurance providers to obtain coverage that has not previously existed.
More than likely, some brokerages — especially smaller ones — will need to reevaluate their carrier vetting processes to ensure they meet the intentionally vague standard of “reasonable care” in carrier selection.
The end result, no matter how you look at it, is inflationary. At a minimum, a significant new cost layer is being added to the insurance and legal columns, and the market may lose a group of carriers deemed too risky to employ due to limited history or questionable safety scores — typically lower-cost providers.
The contract rates in the data above are primarily shipper-carrier agreements and are less exposed to 3PL pricing, but they will undoubtedly receive a boost as the broader market rises. Spot rates will feel the most direct impact, possibly in the form of sustained elevation.
