The 2:00 Minute Warning

Last month, we hosted another interview with our friend and noted economist Walter Kemmsies. Back in July, Walter presciently predicted that we would see the following economic cycle play out: First, we would see a consumer recession, quickly followed by a freight recession and then see an economic recession.

Right now, it appears we are in the midst of the freight recession. As a recent article in FreightWaves noted, the Logistics Managers Index (LMI), which has tracked rates for the past six years, saw “transportation prices fall at fastest-ever pace in December.”

Perhaps that is why as we head into 2023, the tables have turned for shippers and carriers. As one shipper told me, “it’s nice to see the carriers actually pretend like they want my business.”

It’s not like we haven’t seen this happen before. In 2018 when capacity was very tight, a lot of shippers got the “we want to be a shipper of choice for carriers” bug in order to curry favor with the carriers. When there was excess capacity in 2019, currying favor with the carriers became less important. So some of those same shippers, according to the carriers, developed amnesia and were focused on one thing: Getting the lowest possible rates from those carriers.

What does this mean for you and your freight budgets in 2023?

First, shippers need to ask: “Are we a transactional or strategic shipper?” As we have covered in numerous webcasts and On the Record interviews with senior level carriers executives, strategic shippers want long term relationships and predictable capacity. Transactional shippers focus on procuring the lowest possible rates and are willing to tolerate fluctuations in managing carrier capacity.

Second, before you go out and conduct a transportation sourcing event, check out our November webcast with Dr. Chris Caplice from MIT. He shared some valuable information that can help with the carrier negotiation process. For example, instead of sourcing 100% of your LTL and TL moves, focus on the most significant lanes. And understand that the bid results for the carriers are “aspirational.”

Third, plan for volatility. For example, ocean rates have plummeted in the last six months, but few if any experts are willing to predict where ocean rates will be in six months – especially if demand surges as China reopens from its Covid lockdown. And as the inversion between spot rates versus contract rates narrow in the truckload sector, it could signal that today’s abundance of capacity will be tomorrow’s shortage.

With that thought in mind, some shippers are looking at what “flex-budgeting” actually means. Specifically, they're looking at adjusting their budgets on a quarterly basis based on how the market is moving.

If you’re looking for some guidance or insights on the freight markets, we encourage you to check out our quarterly Freight Market Update. And if you’d like to benchmark your LTL and TL rates to understand where they are at relative to the market, get in touch.

BY MIKE REGAN, CO-FOUNDER OF TRANZACT
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