Transfix Take: Midweek Market Update (April 5)

Transfix Take Podcast | Ep. 45 – Week of April 6

No April Fools: How Dire is this Market’s Downhill Ride? 

If you’ve kept your ear to the ground, you know that carriers are quickly losing pricing power, while truckload rates decline and fuel prices remain extremely high. The trends we saw through March continue through last week. Overall volumes are also taking a nosedive, revealing a 15% year-over-year plummet. Because contract freight is looking more attractive to carriers, they are rejecting only 13% of tendered loads for spot freight. Carriers are no longer seeing the optionality of spot freight they were during the previous two years.

As volumes fall, we see rates decline in just about every market outside the South and Southeast, where produce season is in full swing. 

Are freight markets in freefall?

Everyone wants to know: Are we heading for a freight recession or just normalizing? Industry thought-leaders are publishing dire outlooks on the freight markets as we have seen over the past 60 days volume and rates fall off a cliff. 

FreightWaves’ Zach Strickland writes: “The freight market is easing at its fastest pace since early 2021, which was a time when many shippers expected seasonal easing to return. There is still a ways to go to get the market back to where it was in 2019, but the conditions of the past 18 months were always considered unsustainable and tender rejection rates above 20% simply cannot last. Supply or demand will inevitably move toward one another in a free market.”

Let’s pull back and take a look where we are. Yes, rates are down, but rates are still higher as of April 2022 than they were in April 2021 when rates were extremely inflated. Second, let’s keep in mind that the demand (volume) is 15% lower year-over-year, and at the same time, the supply of drivers has been increasing over the last few months. If this trend continues, then the freight markets and the carriers could be in for a freight recession similar to what we observed in 2019. However, we have a ways to go before comparing the current markets to 2019, as volume and rates are still inflated from the previous norms. 

A Peek Inside Freight’s Crystal Ball

The drivers for future markets depend on multiple factors, including inflation and rising gas and food prices. These pain points affect consumers’ ability to spend on goods, but also carriers’ ability to operate their business. If inflation continues its current trend, we could see a freight market similar to 2019. 

“While oil demand is ultimately a tailwind for the American economy, it takes time for it to show up in the aggregate figures,” Strickland adds. “The near-term impacts to the consumer are felt immediately when prices spike as they have.”

If fuel prices remain high, we could see impacts on our capacity base. Mid-size carriers could start parking trucks as operating costs increase, making some lanes unprofitable. Meanwhile, smaller carriers could leave the industry altogether. After two years of record rates for carriers, a portion of drivers left the security of a larger fleet to run on their own, as times were good and high-paying freight was in demand. During this time, operating costs also increased from insurance to equipment prices, so a squeeze on profits could turn these drivers back to larger fleets or to leave the industry altogether.

“One thing that has become true over the past four years is the fact that transportation capacity and prices have moved much more like a volatile commodity than the seasonal echocardiogram reading that existed for the seven years after the recession in 2009,” Strickland adds. “The shippers, carriers and brokers who learn to accept and navigate the turbulence will have the greatest success.”

Extended Lockdowns in China Threaten More Bottlenecks 

Ports in the U.S. may be seeing a decline in volume as bottlenecks improve, but the same can not be said for some of the largest ports in China. As lockdown restrictions in Shanghai extend, supply chain issues ensue. Last week, ships waiting to unload or leave the Shanghai port increased to more than 300 – five times the normal activity. The congestion comes from the shortage of labor due to lockdowns, and it will impact the global supply chains with possible rate increases and delays in transit. The U.S. could be impacted in the coming months, just around the time negotiations with West Coast longshoreman unions are underway. 

 

The movement of freight is changing in every mode, as shippers do their best to keep up with record demand while fighting congestion at multiple points throughout the supply chain. Shippers who think forward, use data and think outside the proverbial box on solutions, while partnering with companies such as Transfix, will come out of this ongoing freight rally in a better position and well ahead of competitors. The one huge win through this pandemic has been speeding up the digital transformation of the transportation industry.

With the uncertainty and volatility surrounding the U.S. economic recovery, shippers need a partner that can help them adapt and excel — no matter the circumstance. Shippers turn to Transfix for our leading technology and reliable carrier network. As volumes drive higher, we are here to help: Learn more about our Core Carrier program and Dynamic Lane Rates. As part of our ongoing market coverage, we’ll continue to provide breaking news, resources and insight into emerging trends and the pandemic’s impact on the transportation industry.

Disclaimer: All views and opinions expressed in this blogpost are those of the author and do not necessarily reflect the views or positions of Transfix, Inc. or any parent companies or affiliates or the companies with which the participants are affiliated, and may have been previously disseminated by them. The views and opinions expressed in this blogpost are based upon information considered reliable, but neither Transfix, Inc. nor its affiliates, nor the companies with which such participants are affiliated, warrant its completeness or accuracy, and it should not be relied upon as such. In addition, the blogpost may contain forward-looking statements that are not statements of historical fact. All such statements are based on current expectations, as well as estimates and assumptions, that although believed to be reasonable, are inherently uncertain, and actual results may differ from those expressed or implied. All views,  opinions, and statements are subject to change, but there is no obligation to update or revise these statements whether as a result of new information, future events, or otherwise.

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