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Christmas comes early for most freight brokers in 2018

( Photo: FreightWaves staff )

Convoy: “there’s action, but no one’s overextended”

How is 2018’s peak season shaping up compared to 2017? As we’ve pored over freight market data, we’ve learned that sure, 2017 was unusual (capacity shocks and elevated volatility), but so was 2018 (elevated volumes, suppressed volatility). While year-over-year comparisons are intriguing and can be useful, our thesis is that as the industry continues to evolve, historical models become less reliable and real-time data becomes critical. 

In our view, two macro forces have created a favorable environment for freight brokers: high volumes and plentiful capacity. Loads outbound from Atlanta (OTVI.ATL) are up 21% year-over-year, while Philadelphia volumes (OTVI.PHL) mushroomed an astonishing 111.9% year-over-year. Notably, tender rejections (OTRI.USA) are still in the basement, suggesting just how much capacity has been added to the trucking market.

 Chicago, Atlanta, and Philly volumes are all up YOY. ( Chart: FreightWaves SONAR )
Chicago, Atlanta, and Philly volumes are all up YOY. ( Chart: FreightWaves SONAR )

What we’re seeing is a high volume, stabilizing national freight market that may be expensive (overall rates are still elevated compared to last year and 2016) but is not very volatile. In our view, the current environment is generally favorable for brokers, who have plenty of freight to move and are having a much easier time finding trucks now than this time last year.

FreightWaves spoke to executives at Axle Logistics, Network Transport, Transfix, and Convoy to get a better sense of how this year’s peak season compares to 2017, where the challenges and opportunities lie for 3PLs in the current market, and what margins looked like this peak.

“Volume has remained high, but capacity seems to have been added into the marketplace, which seems to be trying to keep up and keep some level of equilibrium and balance,” said Drew Johnson, CEO of Axle Logistics, a Knoxville-based freight brokerage on a $100M run rate. “We’ve actually seen a pretty good year as it relates to margins.”

Johnson did say that covering surging food and beverage volumes has been one of the few difficult spots in the market. Grocery distribution centers tend to be strict with delivery windows but often are run inefficiently, and can waste drivers’ time. Johnson said that many of his carriers avoid food and beverage loads, especially when there’s plenty of other freight to choose from. He said that transportation providers seem to be hanging onto leverage even though capacity has loosened.

“A lot of shippers have in the back in their minds the tight capacity environment we’ve been experiencing—-the power shift hasn’t happened yet,” Johnson said.

A freight brokerage based in Chattanooga confirmed that volumes out of Pennsylvania have been exceptional this peak season.

“I have a ton of freight out of Harrisburg, Pennsylvania,” Brandi Reid, Sales Manager at Network Transport, told us. “The Midwest and Northeast are very favorable for brokers right now.”

Still, Reid said that she’s seen her margins tighten up due to high prices for capacity and fierce competition between brokers.

“This peak is a lot more expensive compared to 2017,” Reid said, “and customers want the cheapest rates they can find.”

With that in mind, we wanted to know how leading-edge digital brokerages Transfix and Convoy thought about the current freight climate, loosening capacity, and regional markets.

“We might be causing that competition to heat up,” Drew McElroy, CEO and co-founder of Transfix wrote in an email. “From the beginning, we strongly believed that we could increase the speed, accuracy and efficiency for pricing loads… This all means that we can be very aggressive with pricing and still generate positive margins on a transaction basis.”

“I don’t think increased capacity is solely the result of more drivers this December versus last year,” McElroy wrote. “It’s about cleaning up deadhead and making things more efficient.” McElroy agreed that some Midwest markets were tightening on elevated food volumes.

“We are now starting to see the northern and midwestern states, mainly [Minnesota] and [Wisconsin], begin to heat up with all the food manufacturers and distributors ramping up for the holidays,” McElroy wrote.

Finally, we spoke to Convoy’s Stu Shannon, a Manager of Brokerage Operations, by phone.

“There’s action, but no one’s overextended,” Shannon said. “There’s a ton of volume coming out, but rates are pretty stable… we’re able to shield ourselves and play defense. Everything’s coming at a stable, comfortable rate.” Compared to some of its larger competitors, Convoy can be choosier with the kind of freight it takes, he pointed out.

Shannon said that the pronounced volatility of 2017, when few market participants had a solid thesis on where the market was headed, caused brokers to be more cautious and strategic this year.

“That six months of chaos and indecision [in 2017] made brokers look at themselves and say ‘what are we good at, where are we good at it, and where do we want to play,’” Shannon admitted.

The north-south I-5 corridor is Convoy’s most mature, high volume, automated, and loyal lane, Shannon said, and it’s where Convoy feels comfortable making big plays and introducing new programs: “we punch well above our weight out West.”

“Moving across the country, the Southeast is our newest region and our last region to open up. It’s the newest, but also the fastest growing,” Shannon said. “Now’s a good time to grow in the Southeast—we’re not dealing with produce, we’re not super-exposed, if there’s weather in Charlotte then there’s weather for everyone and we’re not going through it alone.”

Finally, Shannon outlined his basic philosophy of how he wanted to grow Convoy’s business in the Southeast.

“Atlanta to Dallas, Atlanta to Allentown and Philly—you start working on those main arteries and filling in around them, and give carriers the opportunity to make a buck here and there on those fill-ins,” Shannon explained. He said that Southeastern linehauls tend to be of medium length, between the longer moves out West and the shorter moves in the dense urban sprawl in the Northeast.

“You’re building a skeleton—high volume on good lanes out of major cities—then you add the meat on top, and that can be exactly what some carriers are looking for.”

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John Paul Hampstead, Associate Editor

John Paul writes about current events and economics, especially politics, finance, and commodities, and holds a Ph.D. in English literature from the University of Michigan. In previous lives John Paul studied Shakespeare in London and Buddhism in India, but now he focuses on transportation and logistics in the heart of Freight Alley--Chattanooga. He spends his free time with his wife and daughter herding cats, collecting books, and walking alongside the Tennessee River.
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