After last week's Two Minute Warning we heard from some shippers asking for a bit more information on the freight markets. After all, there has been a lot of uncertainty about where the freight market is headed.
Instead of trying to put my thoughts into writing, I thought that for those of you who have questions about how the freight market will affect your budgets and operations, you might be interested in this podcast I had last week with Jeff Berman from Logistics Management magazine. In the podcast, Jeff and I had the opportunity to have an in-depth discussion about how shippers are being affected by the freight market trends and conditions.
First, the freight market is clearly in a recession. Virtually nobody saw the collapse in ocean rates and inversion in spot and contract truckload rates happening as quickly as it did. But clearly, today we are seeing excess capacity and lower - much lower rates in the ocean and truckload markets.
Having said that we are also seeing a compression of cycles. Instead of highs and lows in the transportation marketplace occurring over a 5 to 7 year cycle, we are now seeing these cycles played out over a 2 to 4 year span.
Today, there continues to be excess demand for the supply that’s in play with no end in sight as of yet, but before you think that this will last for a long time, look at how quickly things changed between the first half of 2022 versus today. And if the CEOs who spoke at the JOC's recent TPM conference are correct, expect to see rates rebound sharply by the Fourth Quarter of 2023 or early 2024. As a shipper, what will your strategy be if their predictions for rapidly rising rates are on the mark?
That is why shippers are for the most part looking at two distinct choices in how they will navigate the freight markets. Some shippers will take a transactional approach and push rates as low as possible, while others will look at it strategically. The rationale for the strategic approach is to ensure you'll have more stability when it comes to both rates and capacity when the market changes.
Another topic I covered in the podcast was the importance of scenario planning. There are still a lot of black swan events looming. Whether it is potential disruptions from China, the ongoing contract talks affecting the West Coast ports, or the potential for a UPS strike this summer, savvy shippers are always looking at the horizon to see how future events could affect their supply chains.
Finally, in the podcast Jeff and I discussed how logistics and supply chain issues have continued to become a higher priority amongst executives. I recently had a conversation with one executive who told me he used to spend 3-5% of his time on logistics and supply chain matters. Today, he and his C-Level team are spending about 70-75% on these matters.
That's why last week we held a webinar all about the importance of logistics and supply chain professionals being able to communicate upwards. Happy to say our "What the Board Wants to Know about Your Supply Chain” got rave reviews. If you didn't have the chance to attend, I'd encourage you to listen to the recording.
Last but not least, if you’re looking to evaluate your current rates, we’d be happy to discuss benchmarking your rates, strategies for conducting the right sourcing project, or other needs you have.
BY MIKE REGAN, CO-FOUNDER OF TRANZACT
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