The logistics and supply chain industries are experiencing new ways of working according to recent global events. Companies are dealing with a fall in freight rates, a problem that wasn’t there a few years ago.
According to the website Industry Week, “After a couple years of sky-high trucking rates and tight capacity, the U.S. trucking market is finally softening. Today, retailers have too much inventory and consumer demand has dropped due to inflation and renewed spending on services. The result is weakening demand for truck capacity and falling trucking rates. Truckload spot market rates are below contract prices and 15% lower than a year ago.”
We spoke with experts in our company, and this is what they had to say:
Drew Cherba, Client Development Director at Hubtek, states that, “Everyone knows the business cycle has ups and downs. It’s called the business cycle and not the business line because it never stays going straight in one direction for too long.” He continues by saying that it’s difficult to know exactly where consumer confidence is at the moment, but we know that since the peaks and highs we experienced in early 2022, demand for trucks has dropped, and with less loads available in the spot market, freight rates have followed the downward trajectory of demand. As demand declines and freight rates decrease, our industry tends to become very cannibalistic, dropping rates lower than necessary in an effort to remain viable and relevant to shipper clients. Volumes tend to be prioritized, while profit margins become a nice to have instead of a need to have.
Shippers absolutely know this, and take full advantage. Even the shipper clients that want their provider partners to remain viable and profitable have a hard time keeping their freight with a higher price option when there are so many competitors willing to drop their rates lower than necessary to keep volumes and tenders rolling through the door.
So how do logistics providers and their true shipper client partners remain on a growth path with these conditions? When demand is high, there’s always the perception from shippers and providers that there’s not enough time in the day to find all the trucks for all the loads. When demand is lower, common strategies for weathering an economic downturn, like reducing rates, allowing margins to erode, and/or reducing headcount, do not produce positive results.
He believes that when demand is lower, it is a great time to take a step forward, by looking at how your organization can become more efficient, while continuing to grow. This opportunity for innovation may lead to more automated processes, deeper relationships with your partners, and new strategies for growth that were never considered before. He concludes by saying that organizations that see the valleys of the business cycle as a growth opportunity are the ones that will be incredibly well-positioned when the cycle starts its upward trajectory again.
According to Joel McGinley, Hubtek’s Managing Director, most people in the industry are aware that trucking is a cyclical industry. He says that we are now in our down cycle. We’ve had an up cycle and we’ve enjoyed nice strong freight rates, but freight rates are now loosening up.
We’re also seeing fuel prices coming down, which is going to affect and accelerate the drop-in freight rates. He thinks that we’ve got the seasonal aspect that’s happening as we move into the winter months and that we’re going to see a bottoming out of freight rates. As we move into January and February, they will pick up again but not as strong as we’ve experienced over the last couple of years. The last couple of years have been a bit of an anomaly, if you look historically, but anytime you have an upswing like we’ve had, you’re going to have a downswing.
Companies that haven’t prepared for that are going to have problems; and we’ve seen that with trucking companies who have already announced that they’re going to shut down and go out of business. He believes that if you’re a good operator, you can weather the storm. Now, what do you do to weather the storm? “Pay attention to costs, make sure that you’re getting as much as you can on each load, take care of your people and they will take care of you, but most importantly, have the analytics and understand, from a lane pricing standpoint, where your most profitable lanes are to put the maximum amount of resources in those lanes”. He concludes by saying that nobody likes a down cycle, but the good news is that after a down cycle, there’s always an up cycle, so stay hopeful and be smart as you approach this these next 12 to 16 months.
Finally, Valentina Becerra, Growth Master at Hubtek, says, we all know that the market has been really difficult for the last two years. With high rates and tight capacity, covering freight was a big challenge for our Carrier Sales Reps, but now the trend is shifting, in response to different variables like inflation, war, a new Congress, and full employment, but especially the factories having a lot of goods that will eventually need to be moved, combined with the rising number of trucks and drivers. She states that if we check the figures, spot rates are at their lowest point since early 2021, and contract rates are down between 2% and 7% from the second quarter, according to Lodestar.
“We all know that this won’t last forever, but in the meantime, brokers and shippers can re-negotiate or get better pricing for next year, based on their current relationships with their carriers. Obviously, price is not the only thing to be considered; we also need to analyze the level of service, flexibility, and access to capacity, so we can reduce our supply chain risk.”
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