Ryan: Welcome to the March edition of the C.H. Robinson Edge video.

My name is Ryan Hammett and I'm joined as always by Mat Leo to discuss the latest developments in the global freight market.

Mat, sitting here in March, it's interesting to think that in last month's video, we started out talking about the limited resumption of service to the Suez Canal.

And you said, geopolitical stability would influence whether carriers fully commit to that routeing. Well, guess what? Geopolitical stability was pretty short-lived.

So much of today's discussion will centre on the conflict around the Persian Gulf, particularly fuel impacts, along with a quick update on domestic truckloads. So where should we begin?

Mat: Well, over the past couple of weeks, I've been asked about fuel prices probably about 20 times a day. But why don't we save that topic until the end? That way we can dive a little bit deeper on it.

But the conflict in Iran is creating multiple supply chain impacts. And as you mentioned, the transits through the Suez Canal that were slowly resuming have now mostly been stopped again, pushing most container vessels around the Horn of Africa for container delivery. The biggest impact is freight destined to the Middle East.

We're seeing diversions, delays and in some cases, cargo pushed back to the origin, which forces shippers to make decisions midstream.

Air freight has also been disrupted as routeing and capacity shifts quickly. The situation changes by the day, so rather than trying to capture every detail here in this video, we're going to encourage everyone to monitor our client advisories as this evolves.

Ryan: That's right. If you're not subscribed to our client advisories, I'd recommend you go to chrobinson.com and under the resources tab, find client advisories where you can register for the type of information that impacts your supply chain.

And our team has been very diligent in providing updates on the air and ocean markets as this situation evolves. But Mat, for supply chain leaders, it's a tough start to 2026 with more tariff changes and rising transportation costs.

If you think of your classic freight budget as line haul, fuel and accessorials, each of those has had uncertainty in this first quarter. From an accessorial perspective, people may not be talking about it a lot, but we've seen a variety of risks, security, fuel and even war-related surcharges for ocean and air deliveries.

And we'll get into fuel, like you said in a second, but domestically, truckload line haul rates have had quite a journey so far this year.

Mat: Yeah, I think that's an understatement. We've experienced a market correction for the truckload line haul rates over the past three months. It's been prompted by weather disruptions that began back in Thanksgiving, against the backdrop of an ever-shrinking capacity base.

And since December, we've seen truckload market rates increase as carriers seek out profitable freight and ask for what it takes to keep that truck operational inside efficient networks that they've already built out after years of challenging market.

C.H. Robinson has talked publicly for a couple of years about the ongoing profitability challenge for carriers due to rising costs and depressed rates. And at some point, the laws of economics re-enter the equation.

And that's what's happening now. Unprofitable carriers, as well as those from recent regulatory rulings, have exited and the remaining capacity has less slack to absorb disruption.

Ryan: Yeah, we're visualising this dynamic for everyone. We've seen both spot and contract rates increasing as a smaller carrier base selectively chooses freight that fits their network and really seeks to maximise yield from each piece of equipment.

And that has tightened this gap between spot and contract. At the same time, freight demand continues to be challenged and we're not seeing clear signs of a near-term demand change. Time's going to tell whether energy prices were going to affect the economy.

So are we thinking, Mat, the last few months were mostly disruption driven?

Mat: Short answer, yes. And while the fundamentals are shifting, it's still primarily a supply side story. And I like to look at this through the lens of route guides and route guide failures.

This chart here represents millions of deliveries on C.H. Robinson's platform and how they performed against route guide plans. In simple terms, if a contracted delivery doesn't get accepted through the planned route guide and has to go into the spot market, that's a route guide failure.

Over the holidays, failures peaked close to 7%. Now, they began to improve, but then we had a series of major winter storms that drove failure rates back up. And as those downstream affects cleared, performance began to improve.

Now, we are closely monitoring to see if tender rejections increase due to the disparity in fuel after a rapid one-week spike in diesel prices.

And at the same time, winter storm Iona dropped double digit snow on several states in the upper Midwest, which may also impact route guide performance as carriers seek to avoid disruptions and keep their trucks moving.

Ryan: Yeah and if we look at our forecast, you can see that we still anticipate the normal seasonal quieting of the market, but the baseline has been reset. Returning to a market floor in the weeks ahead doesn't bring us back to where we were in Q3 of 25.

The carrier base is resetting expectation for the cost to move goods. So the next big test should be Road check week and then the typical freight surge around produce and summer holidays.

But as line haul costs begin to settle into a new norm, the bottom line or the all-in cost to move a delivery, isn't necessarily coming down right now because of what's happening with fuel.

So Mat, we teased it earlier. Let's give the people what they've been asking for and let's talk about fuel.

Mat: Finally. All right. So you opened up by breaking budgets into a line haul fuel and accessorials. And for the first time in years, fuel is back on the radar and a real source of uncertainty.

The conflict in Iran has raised questions around oil supply and delivering disruptions, especially through the Strait of Hormuz, as you can see here, which is a critical oil lane that can tighten the market quickly if flows are interrupted.

Now, what experts are watching is pretty straightforward. Do disruptions meaningfully reduce production and supply? And how long do they last? And can replacement supply come online fast enough to prevent a tighter market?

But what actually drives diesel prices? While we're experiencing diesel locally at the pump, it's ultimately priced in a global market. Even though the U.S. produces ample crude oil domestically, domestic prices still move lockstep with global benchmarks. When oil prices rise, they rise everywhere.

Crude oil dynamics do matter, but diesel also has its own fundamentals. So even if crude stabilises, diesel can stay elevated due to tight refining capacity and supply constraints. And local factors as well, like distance from supply points and environmental programmes, can amplify price differences, especially for rural shippers.

Ryan: Yeah and that fuel volatility, it hits carriers first. It really undermines budget predictability and it changes carrier behaviour. And actually, it can accelerate capacity exits, especially when carrier liquidity is already strained.

So looking at the carrier cost structure, the one that's here on the screen, you realise fuel isn't a rounding error for them. ATRI data shows fuel averaged around 21% of the cost per mile in 2024. And actually in 2022, it was over 28%.

So with trucks averaging 5 to 7 miles a gallon, even a small price swing can turn into real money quickly. So for a truck that runs, say, 100,000 miles a year, a $1 increase in diesel prices can mean roughly $1,200 more per month for that truck and fuel costs.

So with margins as thin as they are for carriers, that can be the difference between profit and loss. Carriers, they also have fuel exposure that shippers don't always see. So even when fuel is treated as a pass-through, carriers absorb those costs on miles not covered by the standard fuel surcharges, like deadhead, extra miles driven versus the plan and time spent repositioning or finding parking.

And so that's why a fuel surcharge exists. These are mechanisms to share the fuel risk by adjusting that pay when fuel moves materially away from historical levels. So when carriers quote line haul, they're making an assumption about fuel and then backing into what portion of that cost is or isn't covered by the shipper surcharge programme.

And timing matters. Most fuel surcharge programmes are based on historical prices, not real-time fuel costs. So when diesel spikes quickly, like the example on the screen from March 9th, you can get a gap where carriers are paying today's prices, but being reimbursed based on last week's data. And that lag can hit carrier cash flow hard in a short amount of time.

And the impact can look very different depending on whether the freight is moving under contract or negotiated all in on the spot market, Mat, which you wanted to make a point about.

Mat: Yeah and I think that's what we see a lot whenever we're hearing some of the chipper commentary of, hey, my fuel is starting to rise over here. It's normalised a little bit over here. You really need to look at it through that lens, like you mentioned, Ryan, of contract versus spot.

Because in that contract space, like you said, there's going to be a little bit of a lag depending on when that fuel is uploaded within the system. Because if you're following, say, the EIA national average, that's uploaded on, what, Tuesday, Tuesday night, maybe it gets in the system. So it's based off the data from the week prior.

So that whole week prior, that carrier is going to be off of the prior week's fuel. That's not the case in spot market. Whenever that carrier goes to put a bid on that TMS system that you have, it's for that bid for that load, knowing what that is today.

So they have the opportunity to look and see what fuel looks like today at the pump, at that origin. So they're going to make that change. So you're going to see a shift in pricing a lot faster in the spot market than you do in contractual fuel.

Ryan: Yeah, for sure. It's a great point.

So what the heck's a shipper supposed to do?

In volatile fuel environments, it's tempting to try and optimise the surcharge programme, try and find some quick savings. But research that C.H. Robinson has done with MIT over the years has found that when shippers modify fuel surcharges to reduce costs, carriers tend to compensate by increasing line haul rates. In other words, you can win the spreadsheet line on fuel and lose it somewhere else, often with great effort for virtually no savings at the end of the day.

This is where the concept of stickiness does matter. Carriers, they may tolerate small deviations if fuel stays close to estimates. But as we've been talking about, they can't absorb those significant fuel changes and remain viable or profitable.

And so when line haul plus fuel surcharge doesn't meet the market realities, especially as you just said on spot freight, the long run outcome is simple. Carriers just refuse the freight or capacity exits because they can't afford to stay on the road.

So research has consistently shown carriers want consistent, good freight with adequate lead times so they can build those efficient, profitable networks. There are typically much larger savings in improving those fundamentals than trying to chase a short-term win on fuel this month.

Mat: And as a shipper, that's a lot of stuff, but what can you do instead, especially when carrier profitability is already negative in many ways?

So here are some ideas for you to consider.

First, communication and transparency matter. Right now, there's a lot of talk of gouging on both sides. And it can get emotional. Shippers need to understand that carriers are trying to cover the cost to move the goods on their behalf. But carriers need to understand that for shippers' budgets, every penny counts. So what can you do? Use data. It's straightforward to look at the diesel pricing shifts, average miles per gallon and mileage and come to a fair view in a volatile period.

Second, track fuel and line haul separately as much as possible. It keeps you grounded in that data and creates a clear paper trail for finance and it helps you to understand what is fuel-driven versus what is a broader rate change.

Third, focus on all-in economics by the lane. Now, market rate is line haul plus fuel. Optimising one component in isolation really creates durable and long-term savings, as you mentioned, Ryan. And you also need to treat fuel as a risk sharing mechanism, not a negotiation lever. If you squeeze fuel to save pence, it can often come back to you in the line haul or in service.

You also could match your programme to operational reality. You've mentioned this too. Remote origin points, deadhead exposure and equipment inefficiencies change who is actually carrying the risk. If you have facilities that are hard to get to or haven't got easy access to fuel points, I mean, you could likely pay more to get carriers to accept the freight and finally prioritise stability and relationships in these volatile periods.

Fuel spikes have historically coincided with waves of carrier failures. So the short-term win for a shipper can become a long-term capacity problem, particularly now when carrier profitability is strained. So don't unnecessarily put your carrier base under more financial strain and potentially risk service performance issues.

Ryan: Yeah, those were some great tips, Mat. And I think the goal is, hey, let's not ignore fuel here. The goal is to respond with discipline. Understand how the surcharges work. Recognise where the risk truly sits. And then avoid decisions that weaken your carrier network right at the moment when the market's starting to turn.

So the same applies to everything we've talked about today. In times of uncertainty, be informed, use data, communicate clearly, don't make quick decisions without understanding the impacts.

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