Market developments in the first half of the year have remained steady, but shippers are still working through existing inventory, meaning import levels are still low. Here are three tips shippers need to know for a successful rest of 2023 and beyond.
Live up to your commitments. Once a lane is converted to contractual, honor that volume commitment if meeting service requirements and avoid the temptation of a slightly better spot price. While spot is attractive at the current rates, you could open yourself up to more risk onboarding a poor service provider taking advantage of current market conditions.
If shippers are not focused on contingency planning for Q4 2023 and early 2024, they run the risk of higher costs, lower service quality and inevitable delivery delays later in the year. The freight industry is very cyclical. This could be the bottom now, but shippers must be prepared for when the market turns.
“Q2 2023 is not a period to sit on your hands. Instead, it’s time to work in tandem with your 3PL and carrier partners to discuss what the second half of the year will look like and plan accordingly. We all know rate volatility is real…and it’s about to get even more real when the market does flip. Don’t wait to act until it’s too late.”
Drew Herpich, Chief Commercial Officer
Move as much volume as possible from the spot market to the contractual market over the next 3 months. When doing this, focus on higher volume lanes (over 52 loads per year) or on higher volume markets where you can find competitive contractual rates.
As a result of decreased demand and an oversaturated carrier market, May 2023 spot rates are currently at -26.8% YoY and have just started their journey upward, yet inflation remains well above the Fed’s target of 2%. To succeed in this environment, it is crucial to have visibility into internal and external datasets and conduct proper planning for when the market approaches inflationary territory.
Shippers will be more cautious in replenishing inventories as they continue to wind down last year’s inventory surplus, which was the highest YoY comparison at +11.4% in Q3 2022. As consumers are more careful with their spending, and larger portions of consumers’ paychecks are going toward essentials such as food, consumers continue to prioritize service purchases over goods purchases.
Many consumers are utilizing credit to continue their spending habits, returning credit card debt to record-high levels which are currently up 16.5% above February 2022 levels. Interest rates are also not helping consumers. As a result, there are growing concerns that consumers will be unable to maintain the same level of consumer spending in the second half of 2023.
Benchmark carrier service metrics, such as tender acceptance % and on-time pickup/delivery, so you can hold them accountable to the same performance levels in the second half of 2023 and beyond. This is crucial heading into 2024 with rates expected to be in the carriers’ favor again.
The spikes in the market are becoming more dramatic since the pandemic. Carriers have floors to their pricing relative to their operating costs, typically in the $1.65 to $1.70 cost per mile (CPM) range (excluding fuel), which means we can normally anticipate when capacity will have to exit altogether. However, because of the decreasing fuel costs and lack of opportunity to switch to another craft, drivers are holding out longer this time around.
For any material change in spot rates to occur, there needs to be a capacity dislocation event, or catalyst. The question remains, will it be increased demand or capacity attrition? As it stands right now, it appears that demand will only get a modest gain from Produce Season, thus the catalyst will most likely be enough attrition of capacity to cause a steeper increase in spot rates. With net revocations of Carrier Authority running above 7,000 per month since October, we’re seeing capacity exit. We believe this trend will continue throughout this quarter and into the next.
Shippers can’t afford to wait for market changes to plan – it’ll be too late. Take advantage of the current market and put plans in place for the second half of the year that’ll yield favorable business results in Q4 2023 and into 2024.
Read our Q2 Transportation Outlook to gain even further insights into the market, rate forecasts and mode projections.