TL Capacity Contracts for 11th Month as Carriers Push Double-Digit Rate Hikes

Truckload capacity has now contracted for 11 consecutive months, and Knight-Swift (NYSE: KNX) is demanding "at least double-digit [rate] increases" in annual contract negotiations that just began. That's the sharpest concrete signal from October's Logistics Managers' Index, released Tuesday, which showed transportation capacity at 38 — firmly in contraction — while transportation prices hit 88.

The LMI is a diffusion index: above 50 means expansion, below 50 means contraction. October's capacity reading of 38 declined at a pace 3.6 percentage points slower than September's, so the squeeze is easing slightly at the margin. It's still a squeeze.

Transportation utilization registered 63.5, still growing but 2.6 points slower sequentially. Upstream manufacturers and wholesalers returned a 69.3 utilization reading, 16 points higher than downstream retailers.

What are carriers asking for?

Transportation prices, at 88, kept "expanding at a highly significant rate," though 4.7 points slower than September. Diesel helped shippers only marginally: fuel prices fell 1% month over month but remain up 70% year over year.

Knight-Swift, with roughly 70% of its truckload fleet under non-dedicated agreements, leaned into the spot market earlier this year. The result: tender rejections two to three times the industry average during the third quarter. Recent contract renewals across the market are averaging 13% increases, per FreightWaves' SONAR contract rate dataset.

A widespread crackdown on noncompliant capacity has carriers betting the recovery is just beginning. Several said they will grow one-way fleets again after years of shifting that equipment into dedicated agreements or selling it off to lift asset utilization.

How long will the tight market last?

Surveyed logistics managers expect it to persist. Their 12-month outlook calls for readings of 49.3 on capacity, 67.6 on utilization and 90 on pricing. The capacity forecast implies contraction slowing over the next year — September's outlook was 37.9 — but the pricing forecast jumped 3.9 points sequentially. Managers think rates accelerate from here.

Why are inventories surging?

Holiday hopes. The overall LMI climbed 50 basis points to 70.7, the second-highest level in more than four years. Only June's 71.1 was higher over that stretch. Year-to-date, the index average is the second-highest in the dataset's 10-year history, roughly 9 points above last year.

October inventory levels jumped 8 points to 66.9, the fastest growth in four years. The second half of the month ran at 72.1, about 10 points hotter than the first half.

"After a year of playing things very cautiously due to doubts about the consumer and the high costs of tariffs and transportation, firms are now pulling inventories in as quickly as they can – often at high costs – in an effort to capitalize on what they hope will be a blockbuster holiday season," the report said.

Knight-Swift said it is seeing the most peak-season project freight in its network since the pandemic. Inventory costs rose 8.9 points to 88.8, the highest since March 2022.

What about warehouses?

The inventory push shows up in warehousing. Warehouse capacity registered 43.5, declining 4.2 points slower than September but still contracting; the index has contracted in six of the past eight months after flat readings in January and February. Upstream firms reported severe contraction at 37.5, while downstream retailers saw no change in available space.

Warehouse utilization came in at 58.8, up 5.5 points slower sequentially, but warehouse prices surged 7.2 points to 80.7.

What does it cost shippers in total?

Aggregate logistics costs — inventory, warehousing and transportation combined — totaled 257.5, up 11.4 points sequentially. That's the fastest growth since March 2022, when pandemic-era consumer spending ended and the war in Ukraine began. The all-in costs index sits 55 points higher year over year.

The LMI is produced by Arizona State University, Colorado State University, Florida Atlantic University, Rutgers University and the University of Nevada, Reno, with the Council of Supply Chain Management Professionals. For shippers, the read is blunt: limited capacity, rapidly rising costs, and a bid season where carriers hold the leverage heading into next year's contract talks.