One key trend will find shippers untangling relationships and setting consistent service expectations while demand for capacity remains cool.
What’s happening: Rates have slipped, demand for capacity is down, and costs remain high. It may be a tough time to be a carrier, but that also makes it a good time for shippers and receivers to simplify their relationships and maximize service in the new year.
Why it matters: As consumer habits changed over the last two years, many shippers had to shop hard for capacity, expand their networks, and pull in partners from all over the industry to get goods moved. The result was a lot of complexity and, in some cases, inconsistent service.
The bottom line: As the market takes a breather, shippers are in a good position to strike a balance between a favorable rate and good service, and to lock in contract rates to ensure they’re covered when the pendulum swings again.
As 2023 dawns, demand for capacity is down, rates have slipped, and the usual year-end freight-hauling peak didn’t materialize in the fourth quarter of 2022. In many ways, it’s a tough time to be a carrier, but the outlook isn’t entirely bleak — particularly for shippers and receivers looking for the chance to simplify their relationships and maximize service in the new year.
Paul Bowman, Senior Vice President of Sales and Lee Thigpen, Vice President of Revenue Management
The experts at U.S. Xpress have seen just about every trucking market you can imagine, from the buck-wild freight boom of barely a year ago (seems longer, doesn’t it?) to the lulls that reliably come along now and again in a market that has always been driven by cycles and seasons.
Paul Bowman, the senior vice president of sales for U.S. Xpress, has been working the freight markets and collaborating on customer needs for 30 years. Lee Thigpen, vice president of revenue management for U.S. Xpress, has spent 19 years tracking trends and wrangling the financial realities of the industry. They’ve both seen a little bit of everything, and they have four predictions and recommendations for anyone with freight to move in 2023.
- Expect a slow, wide turn
The first two months of the quarter are typically a slow season, with demand for moving freight staying low in January and February, and gradually ramping up in March as spring fever drives consumer spending. But any run-up in demand this March may be cooler than usual. Instead, the optimists are calling for demand to start increasing near the end of the second quarter of 2023. There are some key indicators that give us reason to expect demand to grow sooner than later, including good job growth reports, and the fact that this dramatic slowdown is really more like a return to normalcy after an exceptionally wild ride. No one is counting on a rapid rebound anytime soon, but the picture isn’t as grim as the headlines might have you believe.
2. Shippers are on clean-up duty
During this slower market, we’re seeing many customers take the opportunity to reset their budgets and reallocate their carrier base. The last two years — which brought a seismic, pandemic-fueled shift in consumer habits — had many shippers scrambling, shopping hard for capacity, expanding their networks, and pulling in partners from all over the industry to get goods moved. At the height of the boom, some of them resorted to overbooking loads, moving significantly more inventory than they strictly needed to because it was a reliable way to get the attention of carriers inundated with opportunities to move freight. Now inventories are bloated, and all that outreach created complexity and inconsistency in both service levels and relationships.
In a world where the pendulum has swung and shippers have more options, they generally like to deal with just a few carriers. The key now is to focus on service, to take advantage of this relatively calm window to establish and expand partnerships with the right providers that can consistently supply capacity, get the right strategic fit for their networks over the long term, and secure a commitment to service levels.
3. More carriers bow out
One reason the freight markets feel loose at the moment is that so many new entrants jumped into the industry and rode the wave during the pandemic freight boom. Many of them are still out there hustling, but it’s getting harder every day — particularly for smaller trucking outfits that are new to the cycles and demands of the industry. Equipment and fuel costs remain high, even as demand falls off, and spot rates have slipped precipitously. Smaller carriers also don’t have sales teams, so they rely on brokers and load boards to keep moving, but those environments are slowing down as shippers regroup and reset. We saw some carriers go under at the end of 2022, and we’ll see more in the first quarter of 2023.
4. The rate stuff
Rates make big news in this environment, and shippers are on the hunt for a good balance between a favorable rate, reliable service levels, and performance consistency. There’s a threshold beyond which a lower rate isn’t going to deliver the results shippers need, but in a market where there’s plenty of capacity to go around, there’s always the temptation to price shop. Rates may not come down much more than they already have, however, given the realities of funding trucking operations. The spot market in particular is putting a real squeeze on carriers that rely on it for profitable one-off runs — those rates have come down to a level where they often don’t support operational costs for carriers. If you’re a carrier with a heavy dose of spot, you’re hurting. Shippers are in a good position to strike a balance between a favorable rate and good service, and to lock in contract rates to ensure they’re covered when the market shifts. And the market will shift. It always shifts. It’s just a question of when.