What does the SCOTUS ruling mean for rates?

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. window. googletag = window. googletag || {cmd: []}; googletag. cmd. push(function() {googletag. defineSlot('/21776187881/FW-Responsive-Main_Content-Slot1', [[300, 100], [320, 50], [728, 90], [468, 60]], 'div-gpt-ad-1709668545404-0'). defineSizeMapping(gptSizeMaps. banner1).

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display('div-gpt-ad-1709668545404-0'); }); 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.

The extreme spread between spot and contract rates is likely narrowing, as brokers must now exercise the same level of caution as carriers when evaluating safety. Spot rates were offered at 25–30% discounts to contract rates in 2023, a figure that has been slowly eroding as capacity tightens.

This ruling could accelerate that trend as carriers are held to higher standards. window. googletag = window. googletag || {cmd: []}; googletag. cmd. push(function() {googletag. defineSlot('/21776187881/fw-responsive-main_content-slot3', [[728, 90], [468, 60], [320, 50], [300, 100]], 'div-gpt-ad-1665767553440-0'). defineSizeMapping(gptSizeMaps. banner1).

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display('div-gpt-ad-1665767553440-0'); }); It will be difficult to determine exactly how much — and how quickly — the ruling influences rates, given that the market is already in a transitional state. The timing of the ruling, landing at the end of one of the most challenging periods for the brokerage community, adds insult to injury.

Roadcheck ended on May 14, pushing tender rejection rates to new highs, with spot rates jumping 5. 7% in three days. The influence of Roadcheck is temporary, but it also marks the unofficial start of an approximately eight-week stretch of increased shipping activity and holiday disruption.

This ruling may exacerbate that effect, but the full impact will take time to assess as seasonal volatility settles and the market restabilizes. The real inflationary impact will come in the form of reduced competition as not all input costs are passed along unless the market will allow it. About the Chart of the Week The FreightWaves Chart of the We