For decades now, the freight marketplace has been cyclical—with moments of calm leading to volatility, and back again to calm. But over the past few years, the periods of volatility have been extreme—plain chaos, really. And though many attempts have been made to address its many inefficiencies, nothing has come close to making an actual impact. So, what are the freight marketplace trends, and what can we learn from them? Let’s take a look into the past to find out.
Freight Marketplace—The Past
Just 3 years ago, in Q3 of 2017, the trucking industry’s rates began to skyrocket. Trucking companies could not honor their contractual commitments and the prices for spot market shipping rose 30%. In fact, 2017 had one of the highest load-to-truck ratios the industry has ever experienced :
The following year wasn’t much better. Because of 2017’s unstable year and surplus capacity, orders for Class 8 heavy-duty trucks reached a backlog of a full year. By the second half of the year, capacity was so tight it meant skyrocketing spot rates. And because of that, the industry experienced the highest spot and truckload carrier operating costs since 2009. Worse yet, this volatility led shippers to move away from spot markets toward the safety of contract rates, which impacted vulnerable carriers the most; many of them didn’t survive and had to shut down. Pair that with 2018’s ELD mandate and driver shortage, and you have one hell of a year of panic and disorder.
In what seems to be a common trend in the freight marketplace, 2019 experienced the same fluctuations. Because of 2018’s rush to capitalize on the market, carriers were still finding themselves with excess capacity and fewer loads. And as time went on, real consequences began taking place. By fall of 2019, 795 trucking companies shut down or declared bankruptcy, more than double that of 2018. And by November, the order of Class 8 orders fell to its lowest since November 2015, to just 17,500.
The pattern is all-too familiar, where fleets continue to take on capacity regardless of the decreasing growth in freight and a continued rise in economic uncertainty. According to the FMCSA and FTR Transportation Intelligence, 13,482 carriers and 34,906 tractors were removed from the truckload capacity market through September of 2019.
We all know that 2020 has been uncertain, unprecedented, and unpredictable. Frankly, it’s been a nightmare, and yet it’s still reflective of problems the freight marketplace has endured in the past, with or without a global pandemic. We’ve seen spot truckload volumes and rates rise sharply for both dry van and refrigerated (“reefer”) freight in just the first three weeks of March, before cresting and spending the final week of the month dramatically below predictions. Specifically, spot truckload volumes rose 16% for dry vans and 12% for reefers month over month, which when compared to March 2019 is a 17% increase for both van and reefer equipment.
Due to the replenishment run in early March (the need for essentials like toilet paper, water, etc.), the market needed 20% more trucks than were available to meet demand. This meant carriers prioritized carrying spot loads to make an extra buck during the market’s tightening, rather than working within contracted rates with shippers. We’ve seen spot rates rise sharply and remain above pre-COVID-19 levels to this day. In fact, spot rates have been above 2019 levels in most markets around the country, and volumes are currently so high that even a significant decline could still keep tender rejections above 2018/2019 comparables.
Freight Marketplace—What’s next?
We cannot deny the sheer magnitude of the current volume of freight flowing in the U.S.. Aside from 2020’s March demand spike, we haven’t seen freight demand like this in recent history. Though 2018 was considered a record year for freight volume, currently tender rejections are more than 14% above the 2018 high point.
This is not to say that the industry hasn’t responded with some innovation, they have, with the introduction of digital freight brokers and dynamic pricing within TMS solutions. But none of those solutions address the underlying reasons of why the system is broken: market volatility and lack of trust that leads to low collaboration among stakeholders, which means zero visibility across network trends. In fact, those models only increase volatility by forcing participants to continuously chase “demand and supply”—all to make an extra buck.
This volatility needs to end, and SemiCab offers a solution. With a fixed rate across all lanes in the network we’re able to remove price volatility entirely. We’re focused on pushing stability across the board: to shippers by offering fixed pricing across all lanes on the network, and to carriers by providing round trips and paying them for all miles driven.
We’re here to bring stability to the freight marketplace. The more shippers and carriers we have working together in our ecosystem, the more enhanced the efficiency of the entire network, which consequently brings value to all participants. That’s how shippers pay less and carriers make more.
Why weather the spot market storm when you can just as easily enjoy the calm waters of our digital freight ecosystem’s community? Learn more about what SemiCab can do for you, schedule a call with one of our executives for answers to all your questions.
Ref : Source: Capstone Logistics, Evaluating the Relationship between Truckload Rates and On-Time Performance. White Paper. www.capstonelogistics.com