Planning is the Key to Reduced Shipping Costs & Service Improvements
CPC provides guidance and action to Shippers resulting in lowered costs and better service
Posted: September 15, 2020 |
The past few years have reflected a time requiring detailed planning and attention to optimize the ebbs and flows of the transportation market place. The rapidly changing economy has created a mine field for Shippers to navigate for the best pricing and service offered by the Carriers.
From 2017 to present, CPC has provided guidance and action to Shippers resulting in lowered costs and better service. History has proven that carriers are responding reactively to each fluctuation in the economy to fend off losses. Additionally, providing an accurate forecast to carriers has been difficult resulting in pendulum swings in capacity. COVID-19 and related forces have produced unprecedented industry impacts never seen before. The lesson learned is that Shippers can’t use a straight-line trend from six months ago; our countermeasure is to pre-plan for each scenario and deploy the plan when those conditions are present. Shippers must look to the future to manage spot rates, capacity, tender rejections and alternatives to ensure they have a truck. Shippers can stay one step ahead by securing capacity through contracts. CPC adheres to this strategy and following this program will improve service and mitigate cost increases and secure capacity.
Below is history and evidence of the everchanging market place:
- 2017 to early 2018: The Carriers enjoyed good times. Low capacity and higher spot rates
- Q2 -Q3 2018: Carriers experienced a down-turn with extra capacity
- Q4-2018: A perfect Storm – Trump tariffs pulled orders forward to avoid the tariff causing a lack of capacity by unplanned demand.
- 2019 – Q1-2020: Carriers experienced an 18-month decline. Added too much capacity. Trucking company bankruptcies with higher operational costs and increased insurance premiums. Demand fell too. The excess capacity built up in 2017 & 2018 was eliminated.
- 2020 – Now: COVID demand fluctuations. As of Aug 2020, capacity tightened. Contracted truckload volumes are running up 27% year over year normally when the market is typically in a seasonal slowdown. This may indicate a trend of a multi-year upcycle for trucking.
Demand is increasing despite a recession-like economy. Several factors not usually experienced in the past such as large government stimulus (YRC bailout) and unemployment benefits are keeping consumer spending intact. Demand for goods remains high as COVID-19 has pushed the consumer to internet shopping. Load volumes running 28% above 2018, the last great year for trucking.
We expect some good news for carriers going into this year. We could see higher profits and improved cash flow going into next year. Senator Pelosi said the two sides were “miles away” from passing another stimulus package. But let us hope with the election looming that both sides would want to get a deal passed. It is however, extremely difficult to predict the political situation, making any forecasting within the trucking industry equally hard.
We see no obvious warning signs that would indicate a pending slowdown, and therefore, our expectation is for conditions in the trucking industry to stay relatively strong and slowly improve as we head into 2021.
A future snapshot
- Since the beginning of July, Capacity has tightened, carriers are rejecting contracted freight.
- Capacity reduced due to reduced truck orders, carrier bankruptcies, insurance increases & more.
- Used Truck prices (on third cost of new) Yet to see a bottom however expect to accelerate in 2021
- Regulatory Issues- U.S. congress voted to double minimum amount of insurance required from $750,000 to $2,000,000. Resolution remains uncertain as the senate must pass as well and may result with the opposite result.
- Load Volume- Freight volume is at a multi-year high, up 12-18% YoY Most consumer spending is experiencing an overall recovery, however, not quite to pre-COVID-19.
- Trucking rates- Spot rates during Q2 YoY up 2.8%. Q3, rate now sit at $2.00/mile linehaul (ex-fuel) This is well above the cost per mile in the $1.40 range (ex-fuel) If this remains, capacity should increase alongside the spot rates.
- Seasonality Considerations- Just like everything else today, it is a “new normal” Nothing is following the usual ease in demand in July and into August and picking up into the 4th quarter Christmas peak. It has been the contrary to what we have seen in past years.
How can Shippers flourish during a Carrier favored market place?
CPC recommends contracting with qualified and stable carriers during a capacity constrained market place. If it’s Airfreight – work with forwarders who have Block Space Agreements with airlines; If it’s Ocean Freight, work with Forwarders that have guaranteed space with ocean carriers; If it’s Full Truck Load, work with Asset and Non-Asset based companies who have established capacity in your network and if it’s Less-than Truck Load, find carriers who are eager for new business and lock them into an agreement that holds them accountable to fixed pricing and a superior service level. To reveal these opportunities, have CPC provide you a No-Cost assessment. CPC is ready to help your company save.