After we sent out last week’s Two Minute Warning, which asked the question: “Have rates in the truckload market hit the bottom?” we heard from a bunch of shippers who are trying to answer a different question. And that question is basically: “If we plan on conducting a sourcing event and issue an RFP for truckload services, when is the right time to be in the market?”
In short, if you are one of those shippers that is trying to “time the market” and make sure that you issue that RFP when truckload rates are at their absolute lowest point, here’s a free tip: “You are playing with fire!” Jumping ahead, we recommend entering the market now and one way to start is to benchmark your rates.
In order to understand why we issue that cautionary note, it is important to know what is happening in the truckload markets.
First, the depth of this freight recession is greater than ever! As noted in a current LinkedIn post, professor Jason Miller from Michigan State highlighted the fact that this is the most significant freight recession in our lifetimes! He also noted that: “The current freight recession (which started in March 2022) stands as the deepest freight recession (that has occurred) without a broader economic recession.”
And as we pointed out last week, the length of the rate decline is significantly longer than in the past. In February, the team at Stifel noted that the typical freight recession is 12-14 months; we are now far past that and there is still uncertainty about when it will end.
And that is why if you are one of those people, like me, who pays attention to the quarterly reports that are issued by the publicly traded truckload carriers, you might want to grab some Xanax. That’s because we are seeing dismal quarterly results from truckload carriers. For example, just this week, the Wall Street Journal published results from J.B. Hunt Transport Services – down 35% from the same quarter a year ago.
But it’s not just J.B. Hunt. In their quarterly announcement, Knight-Swift let investors know they are changing their behavior and allocating more assets to the spot market rather than committing to contracts with lower rates that threaten profitability. It’s a message that we have heard from other major truckload carriers.
Here is what all of them are banking on. Ultimately, the market will rebound and when it does truckload rates will go up – way up if the economy rebounds from its current doldrums.
And that is why market observers like Craig Fuller recently noted that based on tender acceptance rates, we have most likely reached the bottom and shippers should look at trying to lock in contacted rates for the next 12 – 24 months with their truckload carriers.
But before you move forward with that assumption – and plan your truckload rate strategy – there are critical facts you need to consider.
First, how important is service and committed capacity from your truckload carriers to your company? If you focus on getting the lowest rates from your carriers and these rates prove to be even marginally unprofitable to your carriers, you could be in jeopardy of losing your committed capacity. And as we learned in 2021, you don’t want to be forced into the spot market and be “dialing for diesels” to fulfill your customer commitments when capacity is very tight.
Having been in the business for forty years, we know that freight recession cycles are never permanent. If the carriers' predictions are true that rates will ultimately come back – potentially with a vengeance – what should you do?
Based on conversations with several carriers and in looking at various data points from Truckstop, FTR and DAT, if you are planning to conduct a sourcing event in 2024, you will want to be in the market with you RFPs within the next 60 – 90 days.
In short, we are recommending that it is best for you to anticipate change and act now so that you can lock in rates in advance before the market changes and favors the truckload carriers. It's unlikely that truckload rates can get much lower than they are now – and they could increase rapidly in the 3rd or 4th quarters of this year.
If you choose to be proactive and act on our recommendation, you can immediately protect your favorable rates AND the quality of your service at the same time. Your key issue is sustainability – if you want to sustain savings and service, you need to find the best way to conduct a sourcing event.
Here’s where TranzAct can help you right now! We are experts in truckload sourcing, rate procurement, and RFP management – both periodic and selective. We’ve conducted hundreds of sourcing events over the years amounting to billions of dollars of freight spend and we’re in the market every day.
But there’s more – at times like these, we can work with you to address “carrier-friendly” practices that make it easier for your carriers to serve you and provide favorable rates. So, if you want long-term, sustainable savings, we have a time-tested methodology that delivers exceptional results.
If you are interested in learning what that looks like, we encourage you to review our Morton Salt case study: Savings through Transportation Sourcing—Done Correctly. This case study highlights a time tested and reliable process about a sourcing approach that can provide the best possible results.
We have much more, so if you're interested in guidance for conducting a sourcing event the right way, give us a call, send us an email, or schedule a quick meeting.
BY MIKE REGAN, CO-FOUNDER OF TRANZACT
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