Over the last couple months, we’ve shared numerous Two Minute Warnings that have dealt with what’s happening in the truckload market for a couple of important reasons.
First, the historic freight recession that continues to impact the TL sector is simply unprecedented and has left many TL executives and industry experts wondering what is happening. Back in February, we highlighted the fact that the freight recession facing carriers is the longest and most severe rate collapse in recent times, and it continues to progress. And five months later it continues unabated which is why a lot of the carrier CEOs we’re talking with have told me they're out of the prediction business.
The second reason we keep focusing on the TL sector is because eventually TL rates will have to go back up and when they do, they may rise higher and faster than shippers expect. That will be bad news for your freight budgets! Whether those increases occur in the fourth quarter of this year or on into 2025, eventually the TL market has to reach equilibrium where there is some correlation between the rates being charged and the costs to operate a truck.
This week, we saw a report that the cost to operate a truck rose to $2.27 per mile in 2023. Our friends at Wolfe Research contrasted this to current spot market rates: For dry vans they’re about $1.65 per mile; for refrigerated trucks and tankers, they’re higher at $2.15 per mile, but overall carriers are still operating at a loss.
Why would the carriers continue to run their trucks if they aren’t even covering their costs? Part of the answer to that question can be found in an excellent article that FreightWaves published this week. The article highlighted that under the Small Business Administration’s (SBA) COVID Economic Injury Disaster Loan (EIDL) program, the federal government has poured $37 billion low interest, long dated business loans into 419,500 companies in the transportation and warehousing sectors.
This large infusion of cash has been a lifeline to lots of carriers who now simply are trying to generate as much revenue as possible to stay in business even if they are not getting the fully-loaded cost to operate that truck. That leads to a few important points.
First, if you’re going to conduct a truckload sourcing event, we encourage you to get in touch with us. At TranzAct, we have a bunch of best tips and practices that have proven to be beneficial regardless of the market conditions.
Second, make sure that your senior executives are aware of how changing conditions in the TL sector could affect your overall costs. If rates increase sharply, will that significantly impact your customer order landed costs and your supplier cost of goods? Will you have to absorb these increases or will you be able to pass along these increases to your customers? We have some great tools that can help you understand how to protect your supply chain and logistics budget so that you don’t get surprised like you did back in 2021 and 2022.
Third, as we have suggested in the past, do yourself a big favor: Take the survey that our friends at Wolfe Research have asked us to share. If you complete this survey, Wolfe Research will send you a complimentary copy of their complete research findings and that research can be an important asset in your planning process.
Finally, as experts in truckload sourcing, rate procurement, and RFP management – both periodic and selective – over the years we’ve conducted hundreds of sourcing events amounting to billions of dollars of freight spend and we’re in the market every day. We know and can prove what happens when you conduct great sourcing events. If you are interested is seeing savings of 5%-16% for Truckload sourcing events and 12%-26% for LTL sourcing events, let’s talk as these savings are both sustainable and implemented with the proper, and promised, level of service. TranzAct has a time-tested methodology that always delivers exceptional results.
Getting together is super easy! We can talk! Book time with me on Calendly, give me a call at 630-530-6190, or send me an email.
BY MIKE REGAN, CO-FOUNDER OF TRANZACT
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