For the past two years, shippers have had enormous leverage in the freight market, as excess capacity has kept rates under significant pressure. Shippers, who suffered under the weight of sizable market stress during COVID have inflicted “shippers revenge” on motor carriers, something we were warned was coming back in August 2022.
Truckload spot rates, when adjusted for inflation, have plummeted to lows not seen since 2009.
In the early part of the Great Freight Recession, contract rates stayed persistently high as shippers monitored the market and wondered if the market reset was a short-term development or something greater.
In the first quarter of 2023, reassured that the Great Freight Recession was unlikely to end quickly, shippers started to insist on significant rate concessions from carriers. This process accelerated earlier this year.
As a result, carrier profitability hit 14-year lows in the first quarter.
According to FreightWaves channel checks, shippers still insist on rate concessions from motor carriers. This may be ill-advised.
On April 17, FreightWaves reported that we were likely at the bottom of the market and the “end to the worst freight markets in history may be closer than it appears.”
We believe that this analysis is still true, and shippers, not carriers, bear the greater risk. In fact, if the economy continues to grow, freight market volumes will do so as well.
While we are not expecting a massive surge in freight activity, we continue to monitor risks that could change this perspective.
Like all commodity markets, rates become massively volatile when an unexpected sudden demand shock occurs. For trucking markets, no event has more short-term impact on demand than a major hurricane hitting a large U.S. city.
FreightWaves’ early success was largely due to its coverage of Hurricane Harvey, which devastated Galveston and parts of the Texas Gulf Coast around Houston.
NOAA released its May hurricane forecast, where it spells a warning to shippers to prepare for significant disruptions. It is the most aggressive forecast on record. NOAA forecasts that there will be 17-25 named storms, with 4-7 being Category 3 or greater. On average, a hurricane season usually has 14 named storms and three Category 3 or greater storms.
The administration described the 2024 season as “hyperactive” and “the highest NOAA has ever issued in the May forecast.”
Shippers that assume they will be able to react to changing market conditions, in time, may find that carriers lack sympathy for their plight. In fact, carriers have been warning shippers that forcing significant rate concessions will be a mistake when the market flips in the carrier’s favor.
Whether the hurricane season lives up to NOAA’s forecast or ends on a whimper, one thing is certain: at some point, the freight market pendulum will swing against shippers and when it does trucking firms will inflict carrier revenge.
In many ways, Carrier’s revenge is more vicious than shipper’s revenge in the sense that price is easier for shippers to deal with than having freight left on their docks and factories disrupted.
Mike J.
All the naysayers… you’re not experienced enough, obviously. Freightwaves has it right.
John Titweiler
We need to reduce the number of politicians, lawyers and JOURNALISTS. These people are living off the backs of folks that actually work for a living. I doubt that you will print this.
Stan
What large carrier CEO’s will read into this is we need to buy more trucks and be ready to take advantage of the market. Flooding the market with yet more capacity.
Mark Stephens
The Supply Chain Pendulum Swing
An observation by Mark Stephens
Volume capacity. Outbound tender volumes. Spot market rates. These are but a few terms used in the trucking industry within the United States supply chain.
As with any cost to profit business supply and demand remains the critical constant by which one makes predictive analysis.
In a balanced market, freight movement compares nicely to trucking capacity. Trucking capacity is the measurable available units bidding for loads; these loads are often found on load boards such as DAT, CL Robinson, 123Loadboard to name a few.
In today’s current market we find ourselves in a conundrum as such. Where supply is abundant, but so too are empty trailers whose movement depends on quick timing and flexible negotiated compromising techniques by planners and dispatchers.
Pre-pandemic figures categorize nicely into the predictive ebb and flow of the pendulum swing supply chain. The pendulum swing you ask? Essentially it’s the range of profit margins targeted and often surpassed within the supply chain participant namely the shippers and receivers also known as customers and that of the carriers and brokers. Ironically, the margins have hovered in the 30% for either partner. That is before the 2020 covid era. The supply and demand formula was absolute during this time due to the unpredictable consumer buying phases. Production plants, distribution centers and off market third party logistic warehousing begin over ordering and quickly filling beyond maximum capacity. This exasperated increase to the normal pendulum swing was a primary effect of rate escalation.
Carriers, owner operators and brokers reacted in similar fashion akin to the California Gold Rush of the mid 1800s or the oil fracking business in recent years. Carriers and owner operators began purchasing additional equipment then was available such as semis and trailers, old and new. One couldn’t find a semi for sale at that time, but if a truck was located the sale price was at least 50% over the normal value just a mere a few months prior.
As far as the new trucks, orders are being taken a year in advance. Only problem was the computer chip issue which was currently being delayed during development in China perhaps politics played a role, nonetheless the entire concept could be called greed by those in the trucking industry. Actually the answer was well… it was greed.
As a retired history teacher, I do recall 19th century philosopher George Santayana’s century old adage, “by not knowing relative history, there’s an excellent chance of repeating similar failure.” Doomed or condemned I believe was the operative adjective used.
The trucking capacity grew at an alarming scale yet the demand to move product remained the carrot to the thoroughbred. Rates were at their highest ever measured and the pendulum needle could not have reached any further than it did before the adverse effect began.
By the time carriers had received their pre-ordered trucks and trailers in 2023 the reflux of the pendulum began moving in favor of the shipper and receiver (customer) where it currently lies, albeit in a slow decline.
The anomaly is trucking capacity is still extremely high in spite of some of the lowest rates offered and agreed upon. Add that to the rise in fuel cost in 2023 the supply chain industry saw a devastating rise and carrier and broker bankruptcies with thousands either going out of business or parking their units.
Large carriers had a much better chance of surviving due to its potential cash flow and mixed with cost cutting actions compared to the SMB carrier.
Many analysts predict a settlement back to pre-pandemic normality this year. That’s wishful “hopeful” thinking. Bizlytics predicts spring of 2025 to measure closest to pre-pandemic volumes save fuel ventures.
The needed transparency within the supply chain would require one of the two partnerships to take it on the chin, so to speak, in order to balance this pendulum range and minimize it’s volatility. If an agreement was achieved to neutralize the influx of supply chain movement through supply and demand predictives and attainable profit margins would fall in a satisfactory target range the survival of all participants would become a reality; at least until the next pandemic.
Technology is moving along quite well. AI is becoming a more understood ally to the supply chain partnerships and those who exercise that technology will transcend to the top and to those who let’s say wing it, on their instincts, well let us not forget Dr. Santayana’s famous quote.
Mark Stephens
Bizlytics
Keystoner
This isn’t fake news, it’s analysis and opinion.
A snow storm affected TX for what, a week, maybe 2? COVID was over 2 years over the entire planet. 2 totally different effects on the market.
Tim Reis
This is a nothing article. No one can predict the weather five days out let alone months into the future.
Givemeabrake
This hurricane season is only going to impact a VERY small portion of truck freight. I don’t think anything is going to happen to these bottom of the barrel rates. Simple supply and demand; Demand is low and supply is high. The market will correct itself with more and and more carriers going out of business/bankrupt, parking their trucks or whatever. Also this is an election year, for people who have been in this long enough, this happens all the time. I agree with the above…fake news.
Fake Newsfreigh
During covid there was a snow storm in Texas. Never did freightwaves come out and say that because of the storm the rates went up. It was all “due to covid”
This is all fake news.