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Freight Rates: Are they rising because of DEMAND or CAPACITY?

FreightWaves Staff

Thu, July 30, 2026 at 5:01 AM GMT+3 8 min read

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The latest Q2 earnings reports from major trucking and rail carriers paint a clear picture: the freight market is tight, and rates are rising. But is it really about surging demand? Discover the underlying reasons behind increasing contract and spot rates, elevated tender rejections, and how regulatory pressures are shaping market capacity. We break down the key takeaways from JB Hunt, Knight-Swift, and Class 1 railroads, and what it means for profitability and the future of the supply chain.

Earnings reports from major carriers and railroads released this week point to a freight market that remains firmly in the grip of a capacity-driven tightening cycle — one that a FreightWaves analyst said he expects to hold through at least 2027. The data, drawn from SONAR, shows spot rates sitting around $3.53 per mile against an annual average of $2.79, contract rates up 18% year over year, and tender rejections holding at 15.44%.

JB Hunt, which reported July 15, posted a 19% year-over-year revenue increase and beat earnings estimates by nearly 10%, with intermodal serving as the primary engine. Intermodal volumes rose 10% and operating income climbed sharply. Knight-Swift also beat expectations, with revenue up 12.6% year over year and consensus estimates exceeded by more than 20%. KNX's operating ratio improved from 93.8 to 91.4, and management attributed the gains to regulatory and compliance pressures forcing non-compliant capacity out of the market, as well as double-digit contract rate gains, higher spot rates, and rising tender rejections. KNX specifically noted it began seeing contract rate increases in June and that momentum has continued into July.

Three Class 1 railroads also reported positive results. Union Pacific posted 12% revenue growth year over year with 4% volume growth, CSX delivered 10% revenue growth and 6.1% volume growth, and Norfolk Southern reported 11% revenue growth. The analyst attributed the rail strength in part to mode conversion, with shippers shifting loads to intermodal as truckload rates have risen. Conference call commentary from the railroads highlighted strong volumes in both consumer goods and industrial products, the latter consistent with what FreightWaves has described as an industrial renaissance.

The SONAR contract rate index stands at 269 linehaul, compared to an annual average of 241. Measured from August 2025, that represents an 18% increase in one year — a substantial move for the contract market. Tender rejections at 15.44% remain elevated in historical context even as both spot rates and rejections have plateaued, a pattern the analyst characterized as normal July seasonality.

"Before adding any new tractors, management noted that there is significant opportunity to enhance utilization, particularly since some trucks remain unseated."

That quote, attributed to KNX management in a FreightWaves earnings summary, underscores a defining feature of the current cycle: capacity is not returning quickly even as rates rise. Barriers to entry have increased through additional regulation around CDL, DOT, and MC number requirements. Large fleets appear content to maximize utilization of existing equipment rather than expand, and driver recruiting and retention remain difficult, leaving trucks unseated even at major carriers.

Adding another pressure point, Brent crude oil hit $100 a barrel following Red Sea attacks. SONAR fuel indices show retail rates rising faster than wholesale rates, a gap the analyst said presents a short-term arbitrage opportunity for fleets purchasing wholesale fuel. The overall picture, he said, supports a prolonged upcycle: "All signs pointing towards a continued really strong freight market where we expect contract rates to continue to rise, spot rates to remain elevated, tender rejections to remain elevated."

• Knight-Swift beat earnings consensus by more than 20%, with OR improving from 93.8 to 91.4 as regulatory capacity exits lifted rates for compliant carriers.

• SONAR contract rates have risen 18% year over year to 269 linehaul, while spot rates hold near $3.53/mile versus a $2.79 annual average.

• Large fleets are prioritizing utilization over fleet expansion, and new-entrant barriers are rising, keeping capacity constrained well into the cycle.

Speaker 1 [0:08] Good morning. I'm going to fill in for Craig today with our Sonar update, and the story is really about earnings and the implications that that has on the overall trucking market. As you know, last week JB Hunt reported on July 15th. We'll get the opportunity to talk a little bit more about that, but they showed a 19% year-over-year increase in revenue. They beat their estimates by nearly 10%. And intermodal was the engine there really with 10% volume, operating income up sharply. It was really a great story overall. We were able to get KNX earnings last night. They also beat expectations. Revenue was up 12.6% year over year. They beat consensus by over 20%. Their OR improved from 93.8 to 91.4, and they really attributed a lot of this to the freight market. To the regulatory and compliance issues forcing capacity out of the market and allowing more space for rate to increase for those compliant carriers. And they also spoke to double-digit contract rate gains as well as increased spot rates and increased tender rejections. They specifically talked a little bit about how they were beginning to see contract rate increases in June and are continuing to see that in July. Our data really shows the same thing. Spot rates remain elevated currently at around $3.53 a mile on an annual average of $2.79. So, while they've sort of plateaued at that $3.50-ish mark lately and aren't moving a ton, it's very normal. It's July, it is summer, and that's normal seasonality. We're seeing the same with tender rejections. They're sticking right around that 15.5%. They're at 15.44% currently, which is still elevated when you think about it in context beyond just the last couple of months, and again, very very normal seasonality, but we are seeing contract rates continue to rise. We're at 269 linehaul in the SONAR Index, and that's on an average annual rate of 241. And when you think about that and look at it going back to August of 2025, that's an 18% increase in one year, which is huge for contract rates to rise that much. So we're really still seeing tightness in the market. Another interesting headline I read this morning was that Brent crude oil hit $100 a barrel after the Red Sea attacks. Um, again, we can look at those fuel indices in Sonar, and we can again see that the retail rates are rising more quickly than the wholesale rates. So we'll see that gap for a little while until wholesale catches up. So an opportunity for people to play that gap if they are, uh, purchasing wholesale fuel versus retail. Um, and you can see that in the Sonar chart as well. But I think the other big story of the day is that all of the railroads not all, 3 Class 1 railroads reported, um, and really positive earnings overall. Um, we can talk about that more in detail, I am sure, but the basic concept here, the overall, um, is Union Pacific showed 12% revenue growth year over year. CSX showed 10% revenue growth year over year. Norfolk Southern showed 11% revenue growth year over year. Um, both UP and CSX showed respectively 4% volume growth and 6.1% volume growth. So really, again, a really positive story for intermodal. I think we're seeing mode conversions. I think we're— I think we're seeing more volume hitting the rails as truckload rates have risen. And I think an interesting point here is as well that some of the quotes that came from the earnings speak to really strong consumer goods and industrial products. We've been talking a lot about the industrial renaissance. And how strong carloads have been. But I think it was also a really positive sign to hear in the conference call the specific callout of the strong volume for consumer goods. And then one last point I really want to make that I think is, is a great one. We've been talking a lot on the show about if capacity will come back in the market with this being a market You know, kind of unlike what we've ever seen before, where the tight freight market and the rising rates and high tender rejections have come from a decrease in available capacity rather than an increase in demand. So I thought this was a really good quote from Adam Miller and likely speaks to what we're seeing in some of the other large carriers as well. We've talked about it being harder to add capacity back, specifically for small carriers. Barriers to entry have been added. Additional regulation, um, before being able to get a CDL or a DOT number or an MC number. But here's the quote that I read, uh, in the FreightWaves article, uh, summarizing the earnings report: before adding any new tractors, management noted that there is significant opportunity to enhance utilization, particularly since some trucks remain unseated. So just as we've been talking about, not only are we seeing large fleets sort of wait to add trucks to take advantage of this market, we're seeing it harder for new entrants to come into the market. But then that driver recruiting and retaining is continuing to be incredibly hard, which leaves some trucks continuing to be unseated at those large carriers. So I really believe that this is just another example of why this cycle is likely going to last quite a while, certainly in my opinion, through 2027. And we'll see from there. But all signs pointing towards a continued really strong freight market where we expect contract rates to continue to rise, spot rates to remain elevated, tender rejections to remain elevated, and a really great opportunity for carriers to get back to being paid rates that allow them to be profitable.

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