Experts advise shippers to lock in trucking rates early

Industry experts say shippers seeking the lowest truckload rates should lock in current prices as soon as possible. Carriers have begun releasing signals of market improvement, which could mean higher freight costs for supply chain managers in the future. Currently, inventory hasshown signs of normalization, and executives at some large trucking companies have said,a return to normalcy in the market may be imminent。

"Although customers remain in a state of high uncertainty as they enter 2024, almost no one believes that the current demand and capacity cycle is the new normal, or even that it will persist," said Mark Rourke, President and CEO of Schneider National, during the company'sfourth-quarter earnings call. "The consistent question is: when will it change?"

Brokers believe truckload capacity remains oversupplied

Freight brokers agree that the truckload sector remains oversupplied, and more carriers need to exit the market to restore balance.

Jason Mansur, Vice President of Corporate Partnerships at Valley Companies, a broker based in Hudson, Wisconsin, said trends indicate more trucking companies are exiting the market, while new entrants are decreasing. However, stabilization in the freight market could slow capacity exits, which may mean freight rates will barely change or remain flat.

"Our view is that rates bottomed out last fall," he said. "We see some markets starting to rise, but rates are still near the bottom. We don't expect further downside in the future."

Ronnie Davis, Vice President of North American Surface Transportation at C.H. Robinson, said the prospect of stable rates and profits accumulated during the pandemic may be another factor keeping some trucking companies afloat despite the downturn.

"In a typical market cycle, an upcycle adds 10-15% capacity, and a corresponding proportion exits during a downturn, but that hasn't been the case this time," Davis said.

Nevertheless, Ken Adamo, Director of Analytics at DAT Freight & Analytics, said trends indicate the freight market is ready for recovery and has already passed the cycle bottom.

His analysis shows that operating costs for small carriers are at the breakeven point. Additionally, e-commerce and brick-and-mortar sales in the fourth quarter were better than expected, meaning retailers cleared out their inventory.

"By this time, inventory should be fairly depleted," Adamo said.

Even so, neither shippers nor carriers should expect rates to spike sharply. He said a dramatic event—such as another COVID-19 outbreak or an ELD mandate—would be needed to impact the market.

"There are many, I call them, tailwinds," Adamo said, adding that trends suggest "this will be a moderate recovery."

Truckload spot rates hit bottom last year

Spot rates for flatbed, reefer, and dry van trailers since 2018

Rates won't stay low forever

Adamo said DAT data shows spot rates at the end of 2023 were down 10-12% year-over-year, while contract rates were down 12-14% year-over-year. As a result, shippers are trying to secure current lowest prices in anticipation of demand in the third and fourth quarters.

Improvement in spot rates could pose problems for shippers—even for those with contracts. Jonathan Phares, Assistant Professor of Supply Chain Management at Iowa State University, said when spot rates surged during the pandemic and continued into 2022, there were instances of carriers abandoning contracts to chase high spot rates.

While few experts predict rates will spike, some suggest shippers should consider adjusting their logistics management strategies as they prepare for a shift toward a more carrier-friendly rate market.

Davis advises shippers to segment their freight, as not all lanes are equal. For example, a strategic approach is to use data to decide which lanes should be bid out, determining which freight is better awarded directly to carriers and which is more suitable for the spot market.

"We always recommend maintaining carrier scorecards and regularly evaluating service," Davis added.

Mansur of Valley Companies said shippers should plan now for the market shift. This could include budgeting appropriately or negotiating with carriers to strengthen relationships and ensure capacity needs are met.

Additionally, Mansur said shippers should consider offering carriers more dedicated volume and increasing flexibility in loading and unloading operations.

"There are many ways to help carriers, so that when the market turns, they remember the partnership you built, rather than just seeing you as a rate-comparison platform," he said.