The 2:00 Minute Warning

If you’ve been in the trucking industry you know that periodically there will be a freight recession. But today, a whole bunch of truckers are asking themselves: “When will this freight recession end?” And shippers who are trying to “time the market” in determining when they should go out to bid with their RFP’s are asking: “Have truckload rates reached the bottom yet?”

Before answering that last question, here are a couple of things to consider. First, as I learned when I attended the Stifel Conference in February, this freight recession is different from previous freight recessions. My friend Bruce Chan from Stifel explained that “normal” freight recessions last 12-14 months. In February, we were already in the 7th Quarter (or about 21 months) and no one was willing to place a bet on when it would be officially over. They also explained that this recession is different because truckload rates and LTL rates have been moving in opposite directions. While truckload rates are down, LTL carriers are asking for and getting rate increases.

Offline, I had C-Level executives tell me they hoped rates would come back in May or June. Those predictions have been revised. Now these executives are hoping for a rebound by August or September.

Second, what’s causing this to happen? An article “Trucking Oversupply Is Weighing on Carriers’ Earning Outlooks” by our friend Paul Berger at the Wall Street Journal highlighted that there’s way too much supply and not enough demand. Paul noted that “Freight rates have been retreating for much of the year in the trucking sector’s spot market. Analysts and industry executives say longer-term contract prices are also declining as shipping customers focus on keeping inventories lean and logistics spending tight.” Some financial analysts and our friends at FTR have put together some stunning numbers that back up Paul’s points.

While for hire truck registrations have been declining for six consecutive months (according to DOT FMCSA data), there are still 23% more trucks on the road today than there were in December 2019. The number of registered drivers, 3.8 million is also up 23% for the same period. The dry van spot rate averaged $1.905 in the week ending March 1st, up 0.5c from the week prior, but still down from the end of last year while continuing to bounce around with no sign of inflection yet. And the dry van market demand index was down 2% week over week and down 18% from the end of last year, also near its bottom from Spring of last year.

And that brings us back to a key question for shippers: “When is the best time to launch my Truckload RFP?” We are recommending that shippers who plan on bidding out their truckload freight should definitely be in the market within the next sixty to ninety days.

I know it can be tempting to want to continue to beat the market by finding lower pricing in the spot market versus depending on contract rates. If that is your company, here is what you need to know. This freight recession will eventually end and when it does several analysts believe that continuing to play in the spot market will be a very costly decision. Several C-Level executives have told us that when this recession does in fact end, shippers with contracts will get better service and lower costs over the life of the contract and will come out better than shippers who choose to live and die by relying on the spot market.

Ultimately the market will balance out, but the big question is when. Aside from the timing of the RFP sourcing event, it’s really important to remember that today the freight environment is more dynamic than ever before. And that is why shippers should contact TranzAct to make sure their sourcing event is done the right way and delivers the best possible results.

As experts in carrier sourcing, rate procurement, and RFP management - both periodic and selective - we have conducted hundreds of sourcing events over the years amounting to billions of dollars of freight spend and we’re in the market every day. That enables us to help you design the right strategy that identifies any opportunities for sustainable rate reductions while maintaining your service levels. And with our technology, expertise and experience, we have processes and tools that you can leverage for additional improvements.

Overall, before conducting your RFP sourcing event, let’s get your rates benchmarked and make sure that your key issues are identified and the proper solutions get implemented. When all is said and done, you’ll have the right carriers in place with the best rates – rates that are sustainable over time as conditions change.

To learn more about when is the best time to be in the truckload market, give me a call or schedule a short meeting to discuss whether your company should go to bid and how to approach the current market.

Wolfe Research Survey

Last but not least, let me share something with you that could prove to be extremely valuable in understanding the freight markets. Every quarter Wolfe Research holds a survey called "The State of Freight" to gauge activity levels in the transportation industry and the broader economy. The team at Wolfe Research have been gracious in allowing us to extend an invitation to participate in the survey.

Here is why we encourage you to take advantage of this offer: because when you participate and complete their 10 minute survey, you’ll get a complimentary copy of the results and their research findings. Folks investors pay a lot of money for this research, but you can get it for free by taking the survey.

BY MIKE REGAN, CO-FOUNDER OF TRANZACT

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