Trucking

The freight market needs lithium to swing rapidly towards bipolar lows

Contradiction is the only consistency in transportation over the last four years

This Week’s Charts: Van Contract Initial Report, Van Outbound Bid Rejection Index, Truckstop.com Average Van Spot Rate – US Sonar: VCRPM1.USA, VOTRI.USA, TSTOPVRPM.USA

According to FreightWaves’ Van Contract Rate Index (VCRPM1), truck contract rates were still rising as of early March, but spot and bid rejection rates are now in free fall. According to Truckstop.com, the national average spot rate has fallen by 11.6% over the past seven weeks, or 44 cents per mile, and the national average dry van bid rejection rate is more than 6 percentage points to its lowest since June 2020. It is declining. Is this just another link to a self-permanent cycle of high and low transport prices?

There is no doubt about the freight market cooling off After an unprecedented period of increased activity, spot rates decline and career compliance Record pace..

The fall was unavoidable, but it was impossible to accurately predict the timing. Even if many knew this was coming, some would not be completely ready and would suffer the greatest consequences.

Today, consumer demand is finally declining, largely due to inflation and a 180-degree shift in fiscal policy. The conflict in Ukraine seems to have been a proverbial straw that pushed the market back by exacerbating inflationary pressures on multiple commodities, especially oil.

The war between COVID-19 and Ukraine was not a predictable event, but for the past two years it is responsible for shaping the economy and disrupting the supply chain.

The result of the free market is volatility. They may always try to move towards equilibrium, but overcorrection is almost inevitable. This means that many shippers may be willing to reduce rates on the contract side. What they may not be aware of is that it was also the shippers who pushed the charges to their current location. Not a carrier..

The carrier calculates the cost and then sets the price at the low end. Shippers set caps by competing for capacity. Careers have historically been content to achieve an operating profit of approximately 3-5%, which is a nearly non-profit organization in relation to many industry goals.

This low-end expectation keeps the space of the dark ages in terms of technology and innovation, as there is no money left to invest. It’s also a pretty strong barrier to entry for anyone with an entrepreneurial spirit.

Looking at the Truckload Carriers Association data, which is biased towards small and medium-sized carriers, it averages uptime (OR) in the mid-’90s as of February. Knight-Swift (NYSE: KNX) Reported an OR of 78.5% in the fourth quarter of 2021. This suggests that the recent freight market boom has brought far more benefits to large carriers than to small fleets.

The reason for this deserves another article, but the point of this comparison is to explain how the market downturn actually affects the career situation when setting up another pendulum swing. ..

Lower rates hurt smaller fleets more, reduce competition, and set another spike in rates as things get tougher. Less competitive units lead to higher prices.

According to FMCSA, 95% of fleets operating in the United States own less than 21 trucks. Heavy-duty cars sold off much of their old equipment last year, while used truck prices soared.

Most of the used truck market is made up of small fleets and owner-operators who have to bear the full cost of assets that lose value at an accelerating pace as the market slows.

Freight Waves CEO Craig Fuller wrote in an article:Blood bathIs expected to occur. However, larger fleets will get more scrapes as they stockpile cash and significantly limit fleet expansion efforts. This isn’t to blame the large fleets, but to explain that what they’ve done is just a smart business in a highly competitive environment.

Shippers also participate in perpetuation, so it’s wise to understand what they’re dealing with with respect to those that produce these wild swings.

The fluid pricing model has increased in usage over the last 18 months. These may make it easier to achieve upward capabilities, but they may actually accelerate the push to undersupplied markets as the margins are eroded faster. Each of the previous two freight market expansions was preceded by a freight recession (2016-17, 2019-20).

Along with a dynamic pricing model with borders / triggers, a more diverse approach to procurement makes the most sense. To do this, you need objective and reliable information. The carrier-shipper relationship is never a complete trust, but it can be a less variable relationship.

About this week’s chart

FreightWaves Chart of the Week Sonar It provides an interesting data point to explain the state of the freight market.Charts are selected from the thousands of potential charts above Sonar Allows participants to visualize the freight market in real time. Every week, market experts will post the chart on the front page with commentary. This week’s chart will then be archived on FreightWaves.com for future reference.

SONAR aggregates data from hundreds of sources, presents it in charts and maps, and provides commentary on what freight market experts want to know about the industry in real time.

FreightWaves’ data science and product teams release new datasets each week to improve the client experience.

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https://www.freightwaves.com/news/freight-market-needs-lithium-during-rapid-swing-toward-bipolar-low The freight market needs lithium to swing rapidly towards bipolar lows

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