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Saturday, November 16, 2024
Logistics

The market is shifting; shippers and carriers should prepare

It’s no secret that COVID had an enormous economic impact in 2020 and the years succeeding, especially on the logistics industry. 2020 saw carriers bursting at the seams and shipping rates higher than ever, creating a favorable market for carriers.

As shipping volumes and COVID-induced spikes started to decline, however, carriers were left with a lot of excess capacity, leading to diminishing rates at the same time fuel costs were spiking following Russia’s invasion of Ukraine. This created a market shift in favor of shippers.

Over the past six months and as we enter into 2024, the market continues to favor shippers, especially as people are taking advantage of brick-and-mortar stores again.

“With the pendulum swing, shippers now have the power to renegotiate their agreements. They have the power to bring on additional regional carriers whereas before they might’ve been stuck,” said Caleb Nelson, co-founder and Chief Growth Officer at Sifted. “We’re seeing carriers be a lot more flexible now than they have ever been.”

In October 2023, FreightWaves founder and CEO Craig Fuller wrote that the U.S. trucking market could be a year and a half away from capacity balancing with demand. The rate of carrier exits has increased since then, but the point remains: There are few indications that the market turn is imminent.

Fuller also noted that while an increase in rates is possible as a result of anticipation, many analysts, including those at FreightWaves, don’t foresee rates changing until the second quarter of 2024 at the earliest. Until then, the market will continue to weed out those carriers and brokers that don’t have a strong enough strategy or balance sheet to weather the tight margins.

With the looming risk of another market shift, Nelson has advice for both carriers and shippers moving into 2024.

Shippers: Take action; don’t get left behind

If shippers don’t reevaluate over the coming months, they might not have a better chance for a couple of years.

Nelson calls all shippers to evaluate and take action. This favorable market has pushed many to already be rethinking how they do business, with some leveraging tools and technology, developing and nurturing new partnerships, and expanding distribution. These decisions have led many shippers to superior growth strategies and better preparedness for the future.

“Shippers often don’t make changes to their shipping until they start to feel pain,” Nelson said. “So it’s a very unique situation to see this because right now shippers aren’t feeling [a ton] of pain. Regardless, now is the time to be evaluating carrier partnerships because they are more open and willing to work with [shippers] than I’ve seen in the last three years.”

By most metrics, shippers have the upper hand right now. If they haven’t already, they need to take the necessary steps toward fully understanding their data, evaluate what is and isn’t working, and determine areas of weakness.

“If I was a shipper, one of the top things I’d be looking at in my data is my total spend that is being allocated to accessorial fees. Carriers have done a really good job at maximizing their profitability through how much they’re charging for fees,” Nelson said.

Traditionally, shipping contracts are negotiated once every two to three years. However, Nelson strongly encourages shippers to renegotiate contracts now, before the market turns and carriers regain pricing power.

Armed with this information, shippers should have meaningful conversations with their current carrier partners and be open to expanding their network and making a parcel carrier diversification plan.

What exactly is in it for shippers? In a recent Sifted webinar, “Parcel Carrier Diversification Tips and Tools,” Nelson described carrier diversification as a faster and more cost-effective way to reach customers, reduce overall costs and mitigate risk.

To hear more about parcel carrier diversification, view the full webinar here

“Shippers: Be open to creating ‘swim lanes’ within carrier partnerships. Too often, I see a shipper single source all of their volume with the big-name carriers only,” he said. “Now is a great time for them to create swim lanes. Divide that business up and get creative with those carriers.”

Carriers: Get more volume; stay flexible and negotiate in 2024

Shippers currently have leverage, but after this year carriers are likely to become beneficiaries of more pricing power for the next couple years.

Therefore, current flexibility from carriers can help them to gain an advantage over other carriers in future negotiations. It’s time for carriers to be open to conversations around growth and partnerships and create open lines of communication with new and prospective customers.

Many carriers are already having these conversations.

“There are a lot of great regional carriers that are growing at a fast clip, and they’re opening new ZIP codes, having conversations around volume and being willing to try to find a match in that swim lane,” he added.

According to Nelson, this post-COVID carrier capacity is not going anywhere at this time.Therefore, open communication makes all the sense in the world for a carrier right now.

Onward and upward: Look to the data

Those that have access to the most data have the advantage, according to Nelson. “There’s just a lot of things you can do if you have access to the right data and the right technology,” he said.

With that, the last few years have been cause for a shift from the way shippers and brands manage their parcel spend and how they find cost savings. Traditionally, shippers have pushed for a more consultancy-based model around negotiating contracts and embedded service guarantees within these contracts as a way to save money.

Sifted is a logistics intelligence company. It aims to empower shippers to do all the things they’ve used consultants for in the past, to “sift through your data” in order to improve their contracts and operations.

The company’s software provides daily insight into shipping costs and performance. Parcel shippers can compare carriers side by side, track specific KPIs, model out different scenarios, change box sizes, evaluate spend, etc.

“I think we’re really good at understanding the game plan and what the market conditions look like in real time through our software,” Nelson said. “A lot of shippers spend time trying to go through their data when they just need software that [can do that for them]. That’s what Sifted does really well.”

To learn more about Sifted, visit its website.

The post The market is shifting; shippers and carriers should prepare appeared first on FreightWaves.

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