Excess capacity, sluggish demand and unforeseen weather conditions have all affected freight rates. But what do these impacts have on brokers’ prices?
FreightWaves CEO Craig Fuller joined Associate Editor JP Hampstead and market expert and analyst Zach Strickland at FreightWaves LIVE Chicago for this week’s episode of “On the Spot.”
The three debated the importance of price and the current state of the market.
“We do think there will be temporary anomalies and aberrations [in rates] if this winter continues to be crazy and cold, precipitous and disruptive,” Hampstead said.
He believes markets will see “pockets of tightness” with severe weather, which can cause rates to rise. Despite the risk of frigid weather in the coming months, Hampstead sees predictability in rates — namely, not much movement at all.
“The story is very similar to last week in terms of rate movements,” Hampstead said. “We know we’re in a down market and a low-volatility environment. Rates are kind of predictable, hovering around carrier-operator costs.”
From discussions with brokers at FreightWaves LIVE, Hampstead said they were still in growth mode, committed to taking wallet share and aim not to lose margins. He said brokers are focused on contract rates that they can fully honor the length of the year.
However, Fuller sees freight brokerages as more than willing to negotiate prices when the stakes are highest.
“Let’s say you run a billion-dollar company and you have a client worth $100 million,” Fuller said. “They tell you that you’re going to lose their business to an upstart new in the routing guide if you don’t negotiate on price. You’re telling me that you’re going to hold the line on price? I call bullshit.”
Strickland agreed with Fuller that competition still exists in a down market. Shippers and brokers should value pricing strategies regardless of market conditions because carriers will find the best deal where they can.
“In these markets, carriers get desperate. ‘Freight moves freight’ is the common saying,” Strickland said.
But Hampstead argued that price means more to some customers than others. He noted beverage distributors as an example where seasonality factors into the pricing structure. Fuller agreed.
“Water is an interesting commodity itself in freight because certain times of the year [shippers] will pay rock-bottom prices from around September to May,” Fuller said. “It’s one of the worst customers you could possibly have. But from May to September, they pay some of the highest rates.”
Fuller believes price will continue to be the market’s driving indicator and sees the trend continuing as long as market capacity remains excessive and demand in the dumps.
Hampstead added that SONAR’s U.S. Outbound Tender Volume Index – Yearly Change (OTVIY.USA) is currently around -2.5%. U.S. outbound tender volumes have been in steady decline since October but have dropped dramatically since the beginning of November.
“We’ve had a bunch of port imports and seen escalated volumes out of Elizabeth, New Jersey, Savannah and Los Angeles. A lot of these movements were all regional moves,” Strickland said.
Strickland explained that the decrease in volumes can largely be attributed to the U.S.-China trade war but also to overstocked inventories in warehouses around the ports.
Although port cities across the country are experiencing market softness, Strickland noted the East Coast ports have been able to be active longer than those on the West Coast, especially as retail season nears. Because of their proximity to large population centers, East Coast ports can hold freight for long periods of time and wait for the consumption cycle to begin. This is in contrast to West Coast ports, whose freight is largely transferred via intermodal or cross-country trucking upon arrival at the ports.