The freight market is in a state of relative stability — and it’s a favorable one for shippers of all shapes and sizes. The slow demand and ample supply that defined Q1 have persisted into Q2, as long-distance trucking employment saw a 4.8% Y/Y increase in March. Meanwhile, wholesale and retail inventories, key drivers of freight activity, have remained elevated in the past year as consumer spending on goods stagnated.
Although the freight landscape is in a good spot for small and mid-sized shippers in particular, they must avoid becoming complacent, and benefit from the spot market softness, while minimizing exposure to future volatility.
In the face of Q2 market conditions and beyond, small and mid-sized shippers must keep a close eye on incoming market swings to effectively control costs, increase visibility across operations, and ultimately drive meaningful improvements for their businesses.
Plan ahead for rate volatility
Major flooding in California in March has impeded the beginning of produce season: 20% of strawberry fields in a prime California growing region were submerged underwater. The weather has caused lower-than-expected produce volumes out of the state, which helped maintain significantly lower spot rates in April and into May compared to 2022. However, ahead of the summer produce season, which lasts through July, we expect that shippers could see a seasonal increase in rates.
While tightening in June is expected, shippers should carefully watch rates in July, when seasonal tailwinds are supposed to subside. This way, they can know ahead of time whether the soft market will persist this year, or whether structural market tightening has already started.
While rate variability during produce season is to be expected, shippers can leverage technology to plan effectively for any market environment. Shippers that are still using manual methods of securing capacity and rates should consider leveraging a transportation management system (TMS) to unlock flexible procurement solutions and real-time visibility into shipments — all of which help shippers secure the best rates during any uncertainty or volatility in the market.
Leverage logistics technology to secure the right capacity
The recent slowdown in the manufacturing economy has boosted available capacity in most carrier networks, particularly in the LTL sector. The Institute for Supply Management says that a Purchasing Managers Index (PMI) reading below 50 indicates contraction of the manufacturing economy — April reported a 47.1, indicating a continued industry volume decline for the seventh consecutive month.
Despite softening demand, LTL carriers remain price-disciplined to navigate the rising costs of doing business, and are focused on value-added services that drive profits and customer loyalty. US contractual renewals remain 3-5% higher than the rates being replaced, as carriers price new and existing business more conservatively.
As LTL carriers demand more from their shipping partners, securing capacity at competitive rates can be challenging and resource-intensive without the right technology. Agile procurement will be key for shippers to effectively reduce costs and manage KPIs and spend.
In light of Q2’s increased capacity and carrier business growth, shippers now have a perfect window to adopt logistics solutions that source carriers outside of their current networks all at more cost-advantageous rates.
Diversify your mode lineup
Intermodal providers have largely recovered from the capacity crunch they experienced after the pandemic. While intermodal contract rates are averaging a 5-10% Y/Y reduction with some variance depending on lanes, spot rates have fallen to levels the market hasn’t seen since 2016.
As intermodal rates will likely continue to fall in 2023 before bouncing back in 2024, shippers should continue to track spot versus contract rates diligently, given that spot rates in most regions are falling below contract. In the coming years, we expect longer-term supply issues and sustainability initiatives to drive volume back to intermodal and send both spot and contract rates upward.
Shippers should be sure to look into alternative ways to ship freight as well, such as transloading and ocean services, which can provide cost savings and sustainability advantages while demand is weak. By tapping into managed transportation technology, shippers can more seamlessly expand shipping modes and capitalize on favorable rates.
These are just some of the macrotrends influencing U.S. and global supply chains today, but we know that volatility is the new normal. The shippers who plan ahead of this volatility, expand their mode lineups, and leverage cost-controlling logistics technology to lock in reliable capacity will be best positioned to take control of market swings — not the other way around.
Mazen Danaf is Senior Economist at Uber Freight.