Managing Freight Costs? Pay Attention to the Road Ahead!
May 28, 2020
BY MIKE REGAN, CO-FOUNDER OF TRANZACT
Now that the urgent needs to adjust to the COVID-19 climate have started to abate, we have received calls and emails from shippers who are asking questions about how COVID–19 has impacted the freight markets. They also want to know how, or if, they should adjust their freight budget for the remainder of the year.
There are some important issues to consider. For example, this week, the American Trucking Association released a report that said that April was a terrible month for the carriers—one of the worst months in 26 years. It would suggest that perhaps there will be excess capacity which could result in lower rates.
We saw this occur last month. An article in Transport Topics highlighted that truckload rates dropped around 20% over the course of April. But—and this is an important but—the TL rates are starting to recover.
With that thought in mind, we paid close attention to the report out from the recent virtual Wolfe Research Annual Transportation Conference. Specifically, we noted when several carrier executives commented that overall, carriers are doing a much better job of managing the fluctuations in capacity than they have in the past. They confirmed what we learned when we conducted recent interviews with some carrier CEOs (such as Rob Estes, Estes Express; Darren Hawkins, YRCW; Derek Leathers, Werner; and Dave Yeager, Hub Group). When the economy reopens, shippers should expect to see extremely tight capacity in the latter half of the third quarter and on into the fourth quarter.
So the response to the “How should I adjust my freight budget” question really depends on your assumptions: If you believe that there will be excess capacity, then look for lower rates, which could positively impact your budget.
Alternatively, if you agree with the carrier executives who are forecasting tight capacity in the third and fourth quarters, you should look at adjusting your truckload rates upward and on the LTL front, adjust your rates based on the expiration of your LTL contracts.
We’d welcome addressing which scenario may be relevant for your company. Professionally, we are recommending that shippers follow the advice from the carrier CEOs and use the current environment to lock up their capacity for the rest of the year.
We recognize that in the current environment it may be a challenge to focus on rate negotiations with your carriers. You have a lot of things on your plate and time is tight. If so, we have some great resources that can help you lock up that capacity while minimizing your time and resources.