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The freight market could be shifting toward carriers after favoring shippers the past two years.
Shippers have faced increasingly tighter capacity throughout this year while consumer spending has increased after a precipitous drop in the second quarter. The coronavirus pandemic likely played a role in both trends. Nevertheless, those factors are providing carriers with leverage by putting pressure on shippers.
“I would expect to see continued pressure from carriers to shippers to increase price and increase volume commitments,” Glenn Koepke, vice president of network enablement at FourKites, told Transport Topics. “It’s very hot and heavy in the spot market right now. But there are some companies that are facing that in the contract market.”
FourKites is a supply chain visibility platform that offers companies the ability to track and monitor shipments in real time. Its latest data shows shipping volumes have increased by about 2% per week starting in early July. Carriers’ willingness to accept tendered loads also has been high for weeks, reaching 23% as of Aug. 20. This indicates a tight capacity market.
“Capacity has gotten tighter, I think, for a host of reasons,” American Trucking Associations Chief Economist Bob Costello told TT. “You add all of that up, and I think it’s the reason you’ve seen the spot market go crazy in terms of pricing, and capacity is tighter.”
Costello noted that some fleets have gone out of business. The coronavirus and high insurance premiums contributed to that. Many fleets also are operating fewer trucks than a year ago. Training schools are producing fewer drivers this year as well.
“Within our own data, volumes continue to vary week to week,” Koepke said. “In terms of the market shift, we have seen a significant uptick in the amount of new carriers that are coming into FourKites and that are also being used on a daily basis.”
Koepke added that such a rise in carriers using the platform typically indicates the spot market is being heavily used to get capacity.
“In terms of numbers, we’ve had a thousand additional carriers being leveraged for tracking,” Koepke said. “We’ve seen an uptick in spot market freight. So that’s freight that’s last minute that’s coming over for tracking requests.”
ABI Research found an increase in laid off and furloughed workers since the pandemic began also has contributed to there being less capacity. But the tighter capacity is being coupled with higher demand.
“There is demonstrated high demand coming from core goods,” Susan Beardslee, principal analyst at ABI Research, told TT. “My understanding is that a lot of carriers are pushing back against things that are over and beyond contract because they have the ability.”
Beardslee added that downward pressure has been a factor. She also pointed out that retailers are looking to grow with a focus being on the online space. She noted it is unclear whether there will be another stimulus, which would have an impact on the markets.
“It really depends on the mode and the lane in terms of whether it is a shippers market or a carriers market,” Todd Tranausky, vice president of rail and intermodal at FTR Transportation Intelligence, told TT. “There is certainly some tightness in the spot dry van trucking sector that has bled over into the domestic intermodal space.”
Tranausky said that the rail carload space has seen volumes stabilize during the pandemic. They haven’t yet seen meaningful growth, but he noted the dry van spot truck side and domestic intermodal side have become much more of a carriers market as capacity tightened.
“The short answer is yes, some segments of the freight transportation space have swung to a carriers market,” Tranausky said. “But it is unclear how long that posture can be sustained.”
The coronavirus and resulting economic repercussions are among the factors leading to the tighter capacity and increased demand. But those factors are likely temporary, so it’s unclear how long a carrier-favored market would last.
“If I were to forecast, it will course-correct and stay a carriers market for a while,” Koepke said. “What I anticipate is this will stay longer than a month or a quarter. I think we will see this extend into next year. The wild card is the election.”
Koepke noted that over the past two years, carriers were in less of a position to demand higher prices and bigger volume commitments. Shippers had too many other options. Now carriers are in a better position, which could have lasting repercussions.
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