After the Rapids: Staking out new claims in truckload transportation markets when the waters calm

Transportation markets are shifting

Key indicators for truckload transportation rates show markets are trending back to less extreme conditions, indicating the start of a post-peak scenario. Factors driving this transition include decreased spot rate pressures, lower spot volumes, record equipment orders, and increased driver pay and incentives. While seasonal Q3 softening is always expected, the widely touted “October surprise” to kick off Q4 was only surprising because it wasn’t. Capacity availability is still unexpectedly elevated for the season, especially given what we witnessed over the last 12 months.

Other important factors are starting to bring into question the momentum of the economy. We are beginning to see a jittery stock market, the effect of tariff uncertainties, higher inventories, and an almost certain interest rate hike from the Fed – it’s starting to feel like we have made a recessionary turn. Any flat or negative demand from the general economy will exacerbate what appears to be a surplus of transportation capacity and drivers entering the market.

What to do is tricky

The questions on everyone’s mind (and ones that hit my inbox weekly) are “what’s next?” and “how do I prepare for 2019 and beyond?”

Those are tricky questions. Here’s why:

Depending upon your bid discipline as a buyer, and the discipline of your transportation service providers, you could be in a different universe when it comes to expected rate level changes.

Shippers will find great difficulty holding themselves to the significantly high rates obtained from service providers that updated contract rates with reckless abandon in 2018. The recent uptick in truckload rates is far beyond the 3-4% long-term growth rate. As such, an adjustment is forthcoming, but who will benefit?

Enter the service providers that held to bid rates. They will find themselves in a huge competitive advantage as shippers seek to forge stronger partnerships as they clear out the triage rates procured under the duress of rejected tenders and idled trailers. During the last year we have seen up to 20% price increases on lanes purchased in one-off lane events versus those purchased through a network level bidding process. This level of price differential is not consistent with long-term trends and is likely unsustainable.

Of course, not all shippers are disciplined when the market favors them. Many are just as opportunistic as their provider counterparts in the market. So each party has to consider the long-term benefits of appropriately stable pricing if they want a true hedge against fleeting volatility.

At the most fundamental level, most shippers and carriers are a little of both when it comes to opportunistic price seeking (short term) or the pursuit of more stable relationships (long-term). Most employ both strategies across their portfolios during periods of volatility due to the fact that some shippers and carriers are just better than others – better for profit, cost, or service. Knowing where to make these important distinctions among your customers/providers is key to long-term business success across all transportation cycles.

The “true” market reality determines forward-looking strategy and upward communication

If you are responsible for controlling truckload transportation cost this year and have not had to find a new job, you have performed well at managing the volatility and are likely very adept at communicating conditions and expectations to the C-Suite. Tough markets are equally as tough on professional employment as they are on rates, and 2018 was no exception. However, good communication and reactionary tactics in volatile markets are not good enough when leverage in the markets shifts back toward the buy-side. There will soon be equal and opposite top-down pressure to recapture lost costs in the shipper community. Knowing which providers are delivering value against the backdrop of changing rate and capacity dynamics is key so long-term priorities can be maintained as the market corrects.

Our aim at the Freight Market Intelligence Consortium (FMIC) is to develop transportation market solutions that help buyers of transportation prioritize the trident of cost, service, and capacity as the market changes, both with opportunistic partners and their more disciplined competitors. This aim is supported with emerging analytics and data tools which explain not just lane rate benchmarks, but a real-time sense of how contracts are flowing into and out of the market, which includes pinpoint precision of the range of spot premiums and current contract market benchmarks. FMIC Pulse – our newest (and fastest growing) solution – provides instantaneous processing of billions of annual transportation expense using the latest visualization technology and machine learning techniques to make this aim possible for our subscribers.

Aligning your transportation strategy to a dynamic transportation market is important, and the volatility in 2018 will likely manifest into equal but opposite dynamics in 2019 when capacity is more available. Market intelligence from sources like FMIC offer cost savings opportunities and important market-level insights to better align your unique transportation strategies to current conditions.

Matthew Harding is vice president of Chainalytics’ Freight Market Intelligence Consortium (FMIC). Chainalytics’ FMIC provides strategic freight market intelligence, benchmarking and comparative analysis to its members in a private forum.

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