The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.
Historically in the U.S., the fourth quarter of the year brings steadily increasing trucking rates. The question this year is to what degree this trend will continue in Q4 2020.
In a year filled with only short-term predictions, we expected low rates out of Q2, and while they were low, they also exceeded expectations. Trucking rates then surged in Q3, and these high rates are likely going to continue. All signs point to a prolonged trucking rally despite the pandemic and political uncertainty in the U.S. today.
Why are rates already high in Q3 moving into Q4?
Trucking demand has been heightened by the shift in consumer spending caused by social distancing measures. Despite the economic strains felt by many consumers, retail sales have not weakened. Rather than eliminating nonessential spending, consumers redirected their spending from services to material goods, particularly through e-commerce.
With retailers experiencing peak-like volumes well before the holiday spending season, they are struggling to keep stocks replenished. The demand is reducing inventories while sales remain strong, leaving no cushion before sales ramp up as they do in November and December.
“Depleted inventories, surging demand for consumer goods such as retail and grocery, and the continued recovery of industrial production should continue to drive growth in truckload demand. Meanwhile, challenges with placing and keeping drivers seated in trucks will continue to result in a constrained capacity environment. These two factors can result in elevated rates and an active spot market through the end of 2020 and potentially deep into 2021,” said Matt Pyatt, CEO and co-founder of Arrive Logistics. Adding further logistical stress, consumers are coming to expect fast shipping from online retailers, an expectation derived from retail giants like Amazon as well as the wider availability of pickup options, and retailers are pressured to offer competitive shipping times.
While the demand is increasing, capacity is simultaneously decreasing, further elevating rates. Transportation capacity has reached a two-year low, and tender rejection rates are at an all-time high as a result. Although shipment volumes are accelerating, they’re not yet back to the pre-pandemic numbers of 2019, and it could take until 2021 before we start to see that level of recovery. Still, the sharp increase in demand has led to record pricing levels on key trucking lanes.
The U.S. has a solid economic climate despite the uncertainties this year has shown, from COVID-19 to social unrest and the upcoming election. The stock market is high, as there is growing optimism for the economic upswing ahead. Even with the present, unfavorable unemployment rate, the housing market is rebounding, and consumer spending remains high. Increased demand is raising trucking rates higher. The economy could still be vulnerable, however, if the stock market is responding primarily to low interest rates and has underlying weaknesses to its overall stability.
What can shippers do to manage current market volatility?
As a shipper, an important place to start in looking out for your business is with your routing guide procedure. Revisit this document, and make sure it’s up to date, adjusted for current rates, and accurately reflects your requirements and preferences. Consider the option of rebidding for a short-term revision to your annual contract in markets where truck capacity is tight. Be sure to equip your business with detailed research on market conditions. Determine the best length of time for your mini-bid contract, and utilize freight forecasting technology to better manage spot bids and awards.
What should brokers and logistics service providers do to help their customers navigate market volatility and risk?
Freight forwarders, brokers and 3PLs are implementing new technology to better source capacity. Many are connecting with third-party marketplaces or softwares to their TMS for better access to trucks for your business. Maintaining a tried and true pricing strategy and avoiding the temptation to make short-term gains at the risk of tarnishing your reputation — in short, treating your customers and carriers fairly while taking proper care of your responsibilities will be the harbingers of your success in this volatile market.