As the trucking industry shows signs of rate stabilization, supply chain directors are advised to secure favorable rates now to mitigate future cost escalations.
Lock in Rates Now to Avoid Future Hikes
Supply chain directors are being cautioned to secure trucking rates promptly as carrier executives express optimism about a potential rate recovery, which could lead to increased transportation costs. With market indicators pointing towards a normalization of inventories and some trucking firms hinting at a return to pre-pandemic conditions, the current low rates may not last.
Schneider National’s CEO, Mark Rourke, highlighted the prevailing market uncertainty and the anticipation of a shift in the demand and capacity cycle during the Q4 earnings call. The industry is collectively questioning when the market will pivot away from the current state.
Brokerage Perspective: Excess Capacity Must Decline
Freight brokers concur that the trucking sector is currently oversupplied. For equilibrium to be restored, a reduction in the number of carriers is necessary. Jason Mansur of Valley Companies notes a trend of trucking companies exiting the market, which could slow down if the freight market stabilizes, potentially maintaining the current rate levels.
C.H. Robinson’s Ronnie Davis points out that the expected cyclical exit of capacity has not occurred as anticipated, possibly due to profits accrued during the pandemic allowing companies to weather the downturn.
Market Recovery on the Horizon
Ken Adamo from DAT Freight & Analytics suggests that the freight market is on the cusp of recovery, with operating costs for smaller carriers at a breakeven point and retail sales outperforming expectations in Q4, leading to reduced inventories.
However, Adamo advises that neither shippers nor carriers should expect a dramatic surge in rates unless a significant event disrupts the market. The recovery is likely to be gradual.
Strategic Logistics Management for Future Rate Shifts
With spot rates at their lowest in years, shippers are securing advantageous rates in anticipation of future needs. Yet, improving spot rates could pose challenges, as seen during the pandemic when carriers forsook contracts for higher spot rates.
Experts recommend that supply chain directors adopt a segmented approach to freight management, utilizing data to determine which lanes to bid on and which to allocate to the spot market. Maintaining a carrier scorecard and evaluating service are also advised.
Valley Companies’ Mansur suggests that shippers plan for the market’s upturn by budgeting accordingly and negotiating with carriers to solidify relationships and secure capacity. Offering carriers dedicated volume and enhancing loading or unloading flexibility can also fortify partnerships for when the market shifts.
