We talk to many carriers and brokers every day, and we are in a unique time for freight. If you are in the industry, you are likely dealing with headaches running your business.
Navigating the ups and downs of the freight market is a familiar hurdle. There are periods of time where things can be extra challenging however and it stems from the market behaving in ways that buck the normal trends. Slow periods in Q1 are expected. We can prepare for them knowing that that peak freight in Q3 will help us recover. But what happens when “peak” freight season feels less like the top of a mountain and more like a small hill at the local park? That is what we will uncover today in an effort to finish the year strong and have a plan going into 2024 (and beyond).
THE LEAD UP
The freight industry survives because goods need to move from point A→B where buyers exist. Simple, right?
In theory, we have table stakes we can rely on. Foodstuffs, utility supplies, etc. Some things are recession proof. That said, the majority of freight the industry relies on to cover their businesses are consumer oriented goods. Especially in the US, we know people are going to buy stuff (even if they don’t have means to, but a finance blog can handle that topic). In a perfect world, supply chains are strong, people have jobs bringing consistent income, and consumer trends are by and large predictable. In turn, manufacturing companies can plan accordingly to make sure their production aligns with the correct lead times for products hitting the shelves.
But - we don’t live in a perfect world.
Small hiccups to the supply chain can have a much larger ripple effect that can take months if not years to fully play out. A couple of examples:
On one hand, inflation can make it expensive for manufacturers to maintain their levels of production. Or, consumers may not be able to afford the same level of consumption, leaving retailers with excess inventory and causing them to delay ongoing inventory purchases. Less freight moves. Freight recession occurs.
On the other hand, when the economy experiences a surge of liquidity in the market (we can think of a few $600 examples), demand skyrockets and capacity needs to catch up. Being in freight is awesome in this scenario, but it’s also a poorly kept secret. Where money can be made, new businesses and opportunistic incumbents jump at the chance for a larger share of the market. Competition occurs, the market slows, and rates go down. Freight recession occurs.
The point of these examples is - a lot can go wrong very quickly. You can be caught unprepared in the first scenario, or you can be over-leveraged riding the good wave before it suddenly stops (See example: Convoy).
Even when the signs are there, it can take months to fully gauge the impact or severity until it’s smacking you in the face. Macroeconomics are out of our control, and it leaves every link of the supply chain open to exposure. The market that can put you out of business as quickly as it lets you scale.
So where is the market today?
WHERE ARE WE TODAY?
Most economists have been saying that high interest rates, $1 Trillion in household US credit card debt, and an increase in layoffs in ‘23 are the canary in the coal mine for a nose dive in demand. Those are logical signals, but if it were that easy to predict macroeconomic behavior, we would all be day traders living on a beach.
Freightwaves just released an analysis of the market using their OTRI index - which measures tender rejections. It’s low based on projections.
Holiday spending is strong going into Black Friday, and many consumer polls show that people are still planning on spending for the holidays - despite the credit crisis many of them face.
People are still buying. Demand is still there. So why are freight rates keeping us up at night?
Competition is the reason you were able to build a successful business. It’s also the reason prices get pushed down when too many people are bidding for truckloads. Demand is still there, but it’s not like it was a couple of years ago. The surge of new brokers and carriers bringing unprecedented levels of capacity to freight is the issue. There are more people competing for fewer shipments, rates got slashed, and carriers who rely on the spot marketing are getting crushed - to the point of extinction in many cases. We are seeing brokers and carriers going bankrupt every day.
The market is culling and it can get ugly.
WHERE DO WE GO NOW?
To be clear, it’s not all gloom. There are freight companies doing well at this very moment. There are ones even scooping up market share.
Nathan Rothschild was famously quoted saying “the time to buy is when there’s blood in the streets”. While his sentiment was specific to the stock market, the principle remains true through many industries. When equipment is being liquidated for cheap, it’s the best time to buy. When customers need reliable brokers, those who are the most reliable, responsive, and give the best visibility into their shipments win hearts quickly.
With that in mind, here are the focuses our clients have shared as they close out the year and prepare for ‘24.
BROKERS
- Increasing their team’s capacity. Brokers are limited in how many shipments they can handle on a given day. Now they are introducing tools that can increase the daily capacity by 50-100%, raising the revenue per seat and giving brokers more time to build their book of business.
- Maniacal about customer service. Consistent updates on freight in transit and quickly resolving roadblocks. They don’t want their customers to entertain a cold call from a competitor.
- Private carrier network. This can’t be overstated. Shippers are demanding lower rates, but also are more stringent on who they partner with. Remember when all of those new competitors entered the market? Well, a lot of those businesses didn’t run a tight ship and would drop the ball. Shippers prefer vetted, reliable carriers and in turn are favoring brokers who can demonstrate a reliable network for handling their freight. Load boards are built for the spot market, but that doesn’t support companies establishing relationships for contract/dedicated partnerships. We had this scenario in mind when we built Miler.
CARRIERS
- Optimize visibility of the entire fleet. Squeeze an extra load/week per truck. Effectively stay 24 hours ahead of your trucks. Using a system for utilizing equipment at max capacity is a must.
- Understand total costs. Dwell time, dead head, replacing drivers…the list goes on. Minimizing exposure to expenses is critical and factoring in every dollar spent to run a load is a requirement when planning. Operational excellence is key, and it’s driven by the first point - visibility. If you can’t see where you can make more or save more, it’s hard to make adjustments.
- Selling the bottom third of your list. Our clients regularly shop the bottom of their list when looking at overall profit/mile factoring in all costs. They’re working closer with brokers who give them good rates and are reliable. Reporting accuracy is key for making educated decisions.
As we stated at the beginning of this article, most of the industry trends are out of your control. With that said, you can always control your approach in the market and have a plan. There are tools that help identify potholes in your network for this very reason, and if you are relying on legacy tools or spreadsheets to run your business it’s too complicated to manage everything efficiently.
If you want to see if Miler can help as you prepare for next year, you may schedule a demo with us.