A song lyric from one of my favorite bands, Oingo Boingo, goes, “We close our eyes and the world has turned around again.” Those words certainly could apply to the transportation market, especially this year. What is the current state of the market? How might it change in the weeks and months ahead? What actions should shippers take to prepare for whatever direction the market takes?
The Transportation Cycle
As much turmoil as we have seen with COVID-19, I asked Tim to share his views on the transportation market. Tim notes that although there has been a lot of disruption, it really isn’t anything transportation professionals haven’t seen before – rates go up and come down, capacity is soft and then tightens. He says after some soft months, capacity is tightening now.
Tim explains that one of the main reasons for tight capacity right now is a lack of drivers. He notes that 70,000 drivers left the over-the-road market during the early months of the pandemic and getting them back has been slow and difficult. At the same time, as e-commerce deliveries have surged, parcel and local delivery carriers have hired many drivers to keep up with demand. “Companies have also started to replenish depleted inventories, which is increasing demand for capacity,” adds Tim.
As a result, Tim says there has been a decrease in tender acceptance rates and a 4% percent increase in spot market usage year-over-year, with spot market rates up 46% year-over-year compared to BluJay’s index rate. Although there are many unknowns going forward, such a potential surge in coronavirus cases, results of the election and the potential for a significant market correction, Tim believes trucking capacity will remain tight until at least the end of this year.
How Are Shippers Responding?
How are shippers responding to the capacity crunch? Tim says shippers are “finding ways to need fewer trucks, whether by spreading out volumes, improving lead time, better utilization, etc. Maybe it’s better to wait on a primary carrier to pick up a load three days from now versus having to pay a very high rate to ship it today. We’re also seeing organizations getting all of the stakeholders together, including customer service, to see how they can become more flexible and prioritize shipments better.”
Tim is also seeing shippers doing more targeted bids. They are looking to see if there are regions or lanes that are frequently hitting the spot market and reaching out to core carriers to secure capacity and rates for those lanes. “Even if the negotiated rates are higher than what they have been paying, it is still better than dealing with the uncertainties of the spot market,” says Tim.
“The key thing is to take the emotion out of it and just look at the data and then tackle as many opportunities as you can.”
Procurement and Loyalty
Given the need to be flexible and adjust for market changes, I asked Tim if he sees the procurement process changing. Tim says that if you normally do annual procurement to continue doing that and then adjust as necessary. His reasoning is that if you start doing frequent bids to take advantage of rates, carriers know what you’re doing and it decreases their loyalty to you, especially when capacity gets tight. Tim also points out that frequent bid changes can disrupt carriers’ networks, decreasing their efficiency.
Tim recommends that shippers sit down with their key carriers to match lanes and customers to carrier networks and create win-win scenarios. “It’s more important for shippers to keep incumbents on lanes than it was 10 years ago. You may leave some money on the table up front, but you more than make up for it by avoiding spot rates and customer service issues, since it’s all about the customer experience today.”
Study the Data
When I asked Tim what technology was available to help shippers with procurement and transportation issues, he made it pretty simple. He says to study the data and look for technology partners who have the capabilities and experience that match well with your needs and approach. “It can all seem overwhelming right now. You need good reporting and data so you can understand what’s happening and make good decisions.”
Tim had more thoughts on technology, as well as advice on how transportation executives should be looking at the market and preparing their CEOs and CFOs for the inevitable changes ahead. Therefore, I encourage you to watch the full episode for all of his insightful comments (e.g., “Bad news doesn’t get better with age”). Then keep the conversation going by posting your own thoughts (or your favorite Oingo Boingo song)!