Earlier this month, less-than-truckload giant Yellow filed for bankruptcy, leading to over 30,000 lost jobs and an intense bidding war over the defunct company’s terminals. It also led to a sudden LTL capacity nosedive.
The market is still depressed, but recent layoffs and closures have fueled enough uncertainty to make some players wonder about changing market tides.
“The LTL industry is unique right now. Rates are increasing and yet carriers are laying off, or in Yellow’s case, closing their doors,” host and founder of the popular Meet Me for Coffee podcast Samantha Jones said. “If I were to try to describe the overall mindset in the trucking industry, I would say it is one of optimism that things are going to improve when the ‘market flips,’ paired with fear that the market flipping may be too far out to save them.”
That is a very real fear, as more and more carriers are forced out of the market on a near-daily basis.
“It has been brutal for carriers,” Trucker Tools’ Chief Operating Officer Rohit Bezewada said. “They are continuing to face soft volumes, weak spot rates and cost inflation. Many have decided to leave the market.”
While the carrier attrition that has characterized the industry as of late will impact the market by limiting capacity, Jones noted that carriers leaving the market has, historically, not been enough to create widespread change. Typically, carrier attrition must be paired with some type of external event that affects the wider economy — and demand specifically — to flip the market.
Despite this, Bezewada noted that current conditions — namely LTL rate increases and falling inventory levels — have been enough to spark confidence in some of his clients.
“I have seen glimmers of hope as of late through conversations with customers,” Bezewada said. “Inventory levels are starting to decrease. Wholesalers and retailers are starting to lower stock levels, which is good news for the supply chain industry, as well as the broader macroeconomy.”
While LTL rates have climbed somewhat in response to recent events, it is unlikely that this trend will continue long enough — or intensely enough — to effectively shift the balance of power in the market in the near-term future.
It is crucial for carriers to keep that in mind as they enter bid season.
Transactional vs. contractual freight
Shippers continue to have the upper hand entering bid season. Updated contract rates are expected to be relatively low, reflecting that reality. Some carriers are expected to refuse these contracts, fueled by their new sense of optimism.
“We are seeing some carriers decide to risk it on the spot market and not participate in as many long-term bids,” Bezewada said.
According to Jones, that is not a good plan of action. In fact, it could easily lead carriers to their demise.
“Carriers that have relied on transactional business models need to focus all their efforts on converting their businesses to contractual models,” Jones said. “The fact that they have hung in this long, unfortunately, is not going to be enough.”
Jones expects six to 12 more months of sustained market stress for carriers. Relying on the spot market during this time is likely to leave them sitting still, or at least moving freight for rock bottom rates.
For carriers striving to survive this downturn, Jones recommends diversifying the industry verticals they service, in addition to building partnerships that lead to contractual business.
This will allow carriers to pick up more loads during surges across different industries, hopefully padding their bottom lines enough to get them through the leanest seasons.
What does this mean for brokers?
Carriers are in the tightest spot right now, but Jones expects brokers will be hurting more after the next six to 12 months.
“Brokers will start to feel the pressure of decreasing contract rates this year and next year. As the market does change, they will start to feel the sting of relying on transactional business models as well,” Jones said. “It’s really going to come down to who can run sustainable businesses that allow for consistent profit margins.”
The most proactive brokers have responded to market challenges in the same way the most prepared carriers have: by expanding their offerings. The bulk of their efforts have been focused on amping up their tech stacks, allowing them to integrate new, in-demand solutions quickly.
Some of the most popular technologies — like tracking and visibility tools — are becoming table stakes for satisfying shippers. In a market where shippers still have the upper hand, brokers without top-notch tracking options should focus their energies on partnering with a company like Trucker Tools to remedy that issue. Otherwise, those companies risk losing customers altogether.
“The market has forced brokers to get scrappy, retaining and growing their revenue by providing differentiated services, largely through their tech stacks,” Bezewada said. “Also, fraud has sprung up and is hitting brokers the hardest as intermediaries between carriers and shippers.”
Fraud always increases when companies are their most vulnerable, like during times of market stress. Brokers should consider adding various fraud prevention tools to their arsenals in order to protect themselves and their customers during this time. Often, brokers will be able to access some of these tools through their existing technology partners. Trucker Tools, for example, plans to roll out a carrier validation tool later this year.
“This will make us the most secure place to book loads and interact digitally with carriers,” Bezewada noted.
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