While many in the industry believe this year will be better than 2016, trucking executives are concerned about shippers trying to lock in low rates to get ahead of the curve on the contract market.
Their concerns were expressed in a conference call with investment bank Cowen and Co. on Jan. 5, as a panel of private trucking and third-party logistics executives discussed rates, capacity and driver pay.
“We saw volumes way up, capacity was very tight. It was a strong fourth quarter for us in the market,” said Bo Keith, president of FirstExpress, Inc. in Nashville, Tennessee.
But as the traditional bid season heats up in January, some shippers began the negotiations early to take advantage of the loose capacity from earlier in 2016, rather than pay more off of the strong fourth quarter, the executives said.
The latest Cowen-Chainalytics Freight Indices report found that, as of late November, dry-van spot rates were 4.5% higher than contract rates, which was the biggest gap of 2016. While most industry analysts have said they expect 2017 contract rates to go up in the low single digits, the executives believe shippers are trying to use the lag effect between spot and contract rates hikes to their advantage.
“We saw a bunch of touch-feely bids go out in November and December to see how high the rates were going to go,” Keith said. “Anyone who is thinking or asking for a 5% reduction this year has lost their minds. ... We’re not giving you a 5% reduction, so there’s no sense in wasting my time.”
“The bid information that we sent back that we did in the fourth quarter was not very fruitful for us. Some people are quoting some rates that really shocked me,” said Joseph Cowan, CEO of Cowan Systems. “We have not experienced flexibility by the shippers to pay us what we need to get.”
Cowan, whose company ranks No. 62 on the Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers, pledged not to add any new trucks to the fleet in 2017 unless conditions changed on the dedicated contract side.
Matthew Menner, senior vice president at Transplace, agreed that shippers are pushing hard for certain rates but that there is plenty of competition from motor carriers to secure new freight. Transplace, which ranks No. 15 on the Transport Topics sector list of top freight brokerage firms, helps to negotiate contracts for shippers as part of its third-party logistics operation.
“We continue to see favorable performance in those bids, which means cost savings for our customers. We also see a meaningful increase in the number of carriers that are in the competitive range of reasonableness on any given lane contained within those bids,” Menner said. “Sitting on the side of the shippers and beneficial freight owners, the bid season has proven to be a fruitful one in terms of generating value and delivering savings.”
On driver pay, the trucking executives expected a 5% increase in the first quarter due to the anticipated rebound and growth opportunities ahead.
“That’s our No. 1 problem, bar none. It’s heads and tails above every other issue we have in the business,” said Keith. “Our market is available to get; it’s all going to be dependent on drivers. No longer are we searching for areas to grow into where there is freight. We are searching for areas where there might be a mass of drivers to hire.”