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Supply Chain News: Will US Shippers move Back to Spot Market after Signing what Now Look like Expensive Contracts?

 

Move to Spot is Slow, but Tempting given Current Price Dynamics

June 22, 2022
 

The truckload market is as usual full of “gotchas” for US shippers, many of which may be rethinking strategies for the second half of 2022.

Surpply Chain Digest Says...

 

Just few months ago a tender would attract a minority of eligible carriers, but currently tender response rates have increased sharply, indicating that truckers may be more hungry for loads.

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That as for first time in more than a year rates in the spot market for US truckload carriage have dropped below the level of contract rates.

That according to new data from 3PLTransplace, acquired last year by Uber Freight.
After an extremingely tight truckload market throughout 2021, leaving shippers struggling to find capacity to move their loads, many signed contracts early in 2022 in hopes of locking in capacity and fixing rates against still more increases in the year.

That thinking as spot rates had soared to record levels by January, well above contract pricing.

But then spot rates began to tank, as shippers shipped more freight under contract carriage.

According to a report this week from theloadstar.com web site, after reaching a record level of about $3 per mile in January, spot rates dropped over 70 cents per mile in the first four months of the year, then flatlining in May before then sinking further last week.

Those changes led to spot rates falling below contract – tempting many shippers to leverage the spot market.

“The rates many of them [shippers] secured a few months ago seem less enticing now,” the Loadstar reported.

That as capacity remains tight on some lanes. And last week, the Cass Shipments Index, which includes multiple modes but is weighted towards full truckload freight, rose a solid 4.0% in May versus April on a seasonally-adjusted basis, after a small month-over-month decline the previous month.

While there are some signs of a slowing freight market, it is not the “freight recession” some were predicting earlier in year. (See Freight Recession May be Coming, but not Here Yet.)


Some shippers have been migrating to spot, but gingerly, Ben Cubitt, SVP network services and consulting at Transplace, told the Loadstar. He added that only a small minority of shippers has moved to abandon their contracts and pivot to the spot market.


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Cubitt also said that some large shippers are now executing a third round in the tender process to drive lower bids.

He also noted that just few months ago a tender would attract a minority of eligible carriers, but currently tender response rates have increased sharply, indicating that truckers may be more hungry for loads.

However, the drift to spot rates even at the lower rates is being used primarily on new lanes or volumes for shippers.

While building a dedicated fleet with a carrier may seem like an attractive third way, it won’t work for every company, Cubitt says, warning that “If you don’t run that well, it starts becoming a cost burden.”

He also made the observation that the steep increase in fuel costs has made deadheading without moving any freight a lot more expensive today, putting a premium on network efficiency.

Any thoughts on changing trucking strategies? Let us know your at the Feedback section below.


 
 
 
 
 

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