Shippers often face challenges with the unpredictable transportation market that disrupts any consistency in terms of cost, capacity and service. This inconsistency negatively impacts their ability to serve customers efficiently and control freight costs. In this blog post, we will discuss factors contributing to trucking volatility and offer four tips to provide more stability in your transportation program.
Why is Freight Transportation So Volatile?
The freight transportation industry is known for its volatility, with drastic market fluctuations. It’s easy to simply attribute that to “supply and demand,” but one key factor contributing to this volatility is the presence of two types of carriers in the marketplace: career carriers/drivers and the opportunists.
Career drivers and carriers are committed to the industry and have a long-term perspective, whereas opportunists enter the market during periods of high demand to take advantage of the favorable conditions. This mix of differing motivations and commitment levels can lead to fluctuating market dynamics.
Opportunistic new entrants into the truckload carrier market take advantage of inflated market rates, bypassing high-cost barriers such as equipment costs, insurance, driver pay, etc. This leads to an oversupply of carriers when demand decreases, resulting in a deflationary market.
As rates decrease and negatively impact profitability for carriers, those new entrants that could once stomach those high operating costs are now squeezed, many to the point of exiting the market. This decrease in capacity, combined with a potential increase in demand, creates an inflationary market. Rates rise, benefiting the remaining carriers, and the cycle starts again.
4 Ways to Counteract Trucking Volatility
- Contract with asset providers on high frequency or more predictable lanes: By establishing long-term agreements with reliable carriers, shippers can secure consistent capacity and avoid disruptions during periods of fluctuating demand. This proactive approach provides stability and allows shippers to better plan their transportation needs.
- Partner with financially stable brokers and carriers to cover lower volume shipments: This creates a true partnership and builds strong relationships based on trust and collaboration. Working closely with reliable partners enables shippers to leverage spot volume opportunities without compromising service or taking unnecessary risks.
- Measure carrier performance: Shippers should regularly evaluate the service level and cost-effectiveness of their carriers. By rewarding high-performing carriers that consistently deliver with additional volume, shippers can foster stronger relationships and ensure reliable transportation services. At the same time, identifying and culling out lower-performing carriers maintains performance standards and avoids potential disruptions.
- Strategically look at new carrier partners to replace underperforming carriers: Shippers should carefully evaluate potential partners, ensuring they meet the desired service levels and financial stability requirements. By replacing lower-performing carriers strategically, shippers can maintain strong relationships with high-performing incumbent carriers while improving overall operational efficiency and mitigating risks associated with unreliable carriers.
A Proactive Approach
While you cannot control market volatility, implementing these strategies in your carrier procurement approach can increase the stability in your own network. Don’t let the trucking industry’s ups and downs disrupt your customer service.