As the year comes to an end, it’s important to take a step back and gain perspective on the entirety of the freight industry. Post-COVID operation regarding supply chains has not been an entertaining endeavor, and 2022 has certainly been no exception. Leading into 2020, the market was trending in the favor of carriers. A carriers’ market as it is referred to, is when the demand for capacity and trucks is higher than the supply of trucks available to fulfill shipments. What this creates is the allowing carriers discretion in naming their price, seeing that their services are a commodity in the realm of the freight industry. This idea is precisely what was taking place leading into 2020, and was amplified by the pandemic. What has transpired since is the market shifting back in the shippers’ favor. Nothing in the freight industry changes overnight, as the process of returning power to the shippers happened over the course of nearly 3 years of the industry seeking a resolution. However, the factors that lead most into the changing power dynamic were not implemented to resolve the relationship between carriers and shippers, but circumstances that took effect to mitigate the drawbacks of a carrier market.
One of these factors is the fading demand of consumer products. When shippers are experiencing deteriorating demand, there is an inherent decrease in the freight used to move a shipper’s product. When shippers experience consistent periods of lowering demand, there is no need to ship products that seemingly no one wants. When you apply this to thousands of shippers across the country, it becomes clear why the power is returning to the shipper. Carriers who were securing shipments as fast as they were posted for prices that heavily favored their business are now seeing the demand for their services dwindle. If there’s no goods to be bought, there’s no goods to be shipped. When their service is warranted by a shipper, the carrier no longer has the luxury of negotiating lucrative pay on shipments, as the demand is not nearly as high as it has been the previous 3 years. When this is replicated by many shippers and carriers, the negotiating price for freight begins to trend back in the shippers’ favor- which we have now observed. As operation in the last 3 years in the freight industry has been carrier-driven, the complete shift in dynamic will be a gradual but significant one.
This all leads us to where the industry sits today. When you take the aforementioned state of the industry into account, we should see its grasp on freight going forward- and we are. Though the freight industry was not the catalyst, record inflation is changing the way that firms structure themselves and operate- even the biggest names in the industry.
Megabroker C.H. Robinson laid off 650 workers (3.6% of the company’s total workforce) in an attempt to combat changes in market conditions. The lowering demand for shipments is vindicated in the falling price of freight, especially in the spot market- where those in the industry predict to bottom out relatively soon.
We recognize where we are now and how we got here- so what’s next? As previously mentioned, the shipper-carrier dynamic will only trend further toward the shipper in the near-future. Spot market rates are estimated to bottom out in the next 3-6 months, which will be incredibly challenging for carriers and extremely advantageous for shippers’ pockets. When taking all this into account it’s very easy to conclude the worst- freight is doomed. In reality, this is not the case. Yes, we are currently experiencing the consequences of the industry’s volatility; however, for better or for worse, this is always the case. In the past 2 years, carriers have seen the benefit that the market warranted. In the current state of the market, shippers rejoice at decreasing rates. The dynamic’s tug-of-war nature is unpredictable- hence its volatility. This has been the case since the inception of the freight industry.
Finally, we can perceive the ghosts of freight past, present and future. Awareness is half the battle- what do we do now with all this information? You shouldn’t simply lay down and let the market dictate where you go. Despite all of the undeterred circumstances that affect the freight industry, there are ways to mitigate its obstacles. While you can’t necessarily alter the conditions, you can alter the way you respond to industry challenges. Having a deep understanding and knowledge of your supply chain is the number one weapon when combatting market challenges. After all, knowing the face of the problem is the first step in overcoming it.