Shippers and carriers are navigating a freight market that continues to be full of surprises as the COVID hangover hangs on.
What’s happening: We’re a year into the slowdown in the freight markets, and it will be the end of the quarter at the earliest before inventories are burned off and some equilibrium returns to the industry.
Why it matters: Shippers are bargain-hunting hard, using mini-bids to seek more competitive rates, while carriers are investing in relationships and service to weather this persistently muted market.
The bottom line: The only thing you can count on in the freight market is change, and both carriers and shippers are working to forecast the year and prepare for a shift despite the lack of a roadmap for a demand lull lasting this long.
We may be talking about freight, but physics rule the day when it comes to market challenges. “Every action has an equal opposite reaction,” said Lee Thigpen, vice president of revenue management for U.S. Xpress, who has spent 19 years tracking trends and wrangling the financial realities of the industry. In other words, in terms of excess capacity and muted demand for moving goods, we’re seeing the flipside of the frantic freight market of 2021, when the pressure on capacity reached historic highs, largely in response to the COVID-19 pandemic.
Several forces launched during that wild ride have whiplashed, including the entry of lots of small trucking outfits during the freight goldrush, and the bloating of inventories as shippers tried to keep pace with consumer demand. Now we’re riding out an equally dramatic opposite reaction.
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. Seasons and cycles have always driven the market, but relationships have long been the enduring factor, no matter the trends. “A lot of loyalty and strong service are built during tough times for both sides of the market,” Paul said.
Here are four things Lee and Paul see ahead for the second quarter:
A bid season without borders: Bid season has traditionally had an approximate beginning and end, but in today’s market, shippers are eager to keep the negotiations going. Every carrier is on the hunt for freight, and that has shippers shopping for lower rates, and sometimes for shorter-term contracts on the chance that historically low rates may slip even further. Those so-called mini-bids were also happening a year ago, but that was because shippers were desperately seeking capacity. Now their purpose has flipped. Expect mini-bids to come fast and furious, sometimes with horizons as short as six weeks. Bids are also creeping into the dedicated market on contracts that once renewed without them. Across the board, shippers are bargain-hunting.
Relationships still matter, but…: The advantages of incumbency can be big when business goes out to bid, but service levels have to be on point, too – especially in a market like this one. Look for incumbent carriers to get creative and competitive to keep their relationships rolling. When the markets swing wildly, both shippers and carriers tend to feel loyal to the relationships that have seen them through. But competition is always fierce, and while an existing relationship may offer an edge, it won’t be enough to win the day as shippers go shopping for lower rates and better service.
Capacity falls out of the market: Small to mid-sized carriers rode the shipping boom of 2021 long enough to build up a buffer to get them through the lean times. But this high-capacity market has lasted longer than most typical swings in demand, and many smaller carriers that have entered the industry in the last few years are running out of road as costs stay high and demand remains low. We’re one year into the falloff in freight demand, and that drop happened suddenly, over just a month or so last spring. So, there wasn’t much time to prepare, and the 12 months since then have tested even the most seasoned carriers. As carriers call it quits and capacity falls out of the market, that tightening will become just one factor in the only thing you can count on when it comes to trucking: Things change.
Prepping for the turnaround: The usual 4Q freight surge didn’t materialize, and the spring rush looks like more of a slow-drip market thaw, but physics is still out there doing its thing. As the fallout from two extremely divergent markets settles, the pendulum will swing back. To prepare, shippers are working extra hard on forecasting, trying to evaluate how things will look once excess inventory is burned off at the end of 2Q. They’re working to lock in rates with carriers whose service they know they can count on once demand starts to tick back up. Carriers, meanwhile, are investing in relationships and service now to help keeps things moving when the balance shifts. And while shippers will hold carriers accountable for rates and service, carriers will look for freight volume commitments to be fulfilled.