There’s a brutal peak ahead… Here’s 3 things smart shippers are doing right now to prepare.
No one could have predicted it…
For over a year the North American freight market had been relatively stable and quiet.
In 2019, dry van rates were down by double-digit percentages, capacity saw an all-time glut and contracted rates were nearly flat year over year.
As we entered 2020, it was supposed to be a year of moderate growth.
Most market analysts were calling for rates and volumes to go up slightly. And some capacity was expected to leave the market after a really tough 2019 for carriers…
But, no one was predicting a complete market disruption.
As it turns out, a global pandemic had other plans for the world of freight.
The wild swings in volume and capacity since March have been shocking even for those that follow these types of trends.
Considering that it’s now August and we’re normally in the middle of a summer lull, a snapshot of the freight industry shows an unsettled market:
- Volume is up 34% over 2019 and 38% above the 2018 value.
- Load to truck ratio is at 5.23… practically unheard of this time of year.
- Rates are 13% higher than those of 2018
So, what’s this mean for shippers?
Believe it or not, in under 90 days we are likely to be in the tightest freight market since 2017.
And let’s remember, 2017 was a year that ended with a load to truck ratio of 9.0 and left scars on a lot of financial statements.
It’s safe to say it was a disastrous time for logistics planners across North America.
Before we get too hyperbolic, let’s take a look at how we got here… what the market signals are indicating… and how smart shippers can get ready for what’s sure to be a brutal peak crunch.
A quick look at how we got here:
The year started off pretty typical: Volume and capacity started cooling down after the holiday. Rates were low and it felt like 2020 might be a repeat of 2019 with a capacity glut.
There were some regulatory concerns on the radar with AB5 and drug and alcohol testing, but it seemed distant.
And then in February, we first caught wind of COVID-19 possibly affecting the freight market.
March is when things really started to get ugly. As the virus hit North America, people panicked. Consumers filled up their grocery carts with all they could find, and shipping volume surged.
By April, the market had completely flipped… unemployment was on a wild rise, warehouses were depleted, and volume plummeted to an all-time low.
With volumes and rates so low, many drivers decided to park the trucks and stay home. Why risk getting sick for no money, right?
But May brought hope as produce season began and stimulus checks started to roll in. Volumes started ticking up… and for the first time since March, so did tender rejections.
This trend continued through June and the beginning of July…
The sentiment was that after the 4th things would cool down. I mean… they always do…
But not this year!
The 4th of July weekend actually kicked off the first real capacity crunch in 2 years.
By the end of July, volumes had jumped 27% year over year, tender rejections had doubled since Independence Day, and all bets for a summer slump were called off.
Feeling the whiplash yet?
If you’ve read this far, it’s probably because you lived it. And yes, you felt the spring market flip into the summer crunch.
With no summer slump and capacity currently at a load to truck ratio of 5.22… what does this mean for peak?
Well, all indications are the next few months are going to get rough.
Here’s what you should expect…
2020 Peak Prediction
No one in their right mind could have accurately predicted that a global pandemic would be the black swan event to disrupt the freight market in 2020.
This year has been an absolute roller coaster ride for freight. As we roll through Q3 and lean into Q4, we finally have a clear vision of what the final months of 2020 will look like.
The 2020 Peak Season is going to be brutal for shippers.
Here’s the hard data and 3 market indicators that are driving this prediction:
1. Volumes Just Won’t Quit
The volume started to build momentum back in May…
There was a nice little volume boost from states slowly reopening, government stimulus and produce season.
The crazy thing is… volume hasn’t stopped soaring since.
Today, volumes are up 35% year over year and well above 2018 volume…historically one of the most volatile years in freight.
Well, it was… until 2020.
And the volume keeps growing.
It’s been all systems go as North America comes back to life and goes back to work… (more on that below).
Even as rates have risen sharply, capacity hasn’t come back into the market.
As volume and rejections continue to rise and peak grows closer, it’s clear it’s going to be a bloodbath looking for a truck come holiday season.
2. Carrier Pricing Power Sits at an All-Time High
The load to truck ratio has been on a meteoric climb since April. It’s bucking all seasonal trends and currently sits above 5.2.
And tender rejections, well they are at remarkable levels… 31% above 2019 levels and 34% above 2018.
“I’ve got the power” is no longer a 90’s Snap! song. Now, it’s every carrier’s modo when it comes to pricing. But understand, it doesn’t go without good reason…
Many carriers had survival concerns before the market got volatile. Massive insurance hikes, gig economy laws, and thin margins were just a few of their concerns. And the pandemic just made things worse.
After a brutal beginning to 2020, carriers have some catching up to do… and these soaring volumes and prices give them just the opportunity to do it.
3. The Economy Starts to Come Back to Life
Lastly… the economy is showing signs of life.
Business reopenings, increased unemployment benefits, stimulus packages and reduced unemployment rates are each helping to get the economy back up and running… and it’s being reflected in consumer spending reports.
In June, retail sales showed a 7.5% increase from May and that upward trend has continued into August.
Of course, the boost in consumer spending hasn’t been distributed evenly across industries… but it has been in favor of the industries that require freight.
Food and beverage, consumer products, personal protective equipment, electronics and home improvement goods saw a spike in demand, while entertainment spending drastically decreased.
And this week, both the industrial and retail sectors checked in with more news of growth as retail sales continue to recover and industrial production and factory output rises.
The net effect is that industries with a spike in demand have resulted in massive growth for manufacturing and soft commodities. The U.S. PMI grew from 43.1% in May to 52.5% in June… breaking numerous historical records for production. In July, that trend continued as the PMI index hit 54.2%.
All indications point to an economy that is clearly on a steady path to recovery.
This perfect storm of increasing volumes, tight capacity and a growing economy is going to make for a brutal peak season for shippers.
Volumes will continue to soar… capacity will be tighter than ever… and rates will surge.
While you can’t avoid what’s to come… you can get ahead of it.
The question now is… how will you prepare?
3 thing smart shippers are doing right now to prepare
I’m sure you’ve felt the pinch… and pretty much all analysis points to data that says it won’t change through the end of the year.
Of course, what this means for shippers is that you need to prepare for peak now.
Believe it or not, in under 90 days we are likely to be in the tightest freight market since 2017.
Here are the 3 things smart shippers are doing now to get ahead of the peak crunch:
1. Push a peak season RFP
Clearly this year is far from normal.
Currently, the load to truck ratio is sitting at 5.2. The number of shipments is going up… and the number of truck posts are going down. Truckload rates are hovering over $2.20 in August… and there is no reason for analysts to believe this is going to slow down.
With peak season right around the corner, smart shippers are running peak season RFPs to lock in reliable carriers on their lanes and get ahead of the inevitable surge in rates ahead.
Regardless of their normal bidding process shippers understand that this year they will need an extra ounce of prevention and now is the time to take it.
If you need help with your RFP… check out our guide: The Ultimate RFP Checklist for Shippers. It’s the blueprint for building a world-class RFP.
2. Expand your carrier base now.
Smart shippers are testing new carriers ahead of the crunch… come peak season, having trusted carrier partners will be vital for your bottom line.
The last thing you want is to take a chance on a new partner in the middle of a tight market.
As you bring on new carriers, be sure to measure their performance using key performance indicators.
If you are looking for a manual to benchmark carrier performance, check out The Complete KPI Worksheet for Shippers.
It’s the gold standard for carrier scorecards and will help you line up the best carriers for this year’s peak season.
3. Re-forecast the transportation budget.
The cost equation will be much different this year and most haven’t prepared for it.
Costs will increase beyond anything seen in the last 24 months. Make no mistake, your transportation budget will be blown. Smart shippers are providing context to their executives and informing them that this peak season is going to be one of those anomalies.
Let your bad news travel fast and prepare your organization for the extra expense. This will take any undue pressure off your staff as market conditions get difficult.
Truth is, we’re heading into an inflationary period for freight.
And the worst thing you can do is close your eyes and wish it away… this market is here to stay through 2020.
Instead of trying to make your current budget work for you, get ahead of the game…
Test new partners… build a stronger lane waterfall with a peak season RFP… and re-forecast your budget.
You’ll be glad you did.
Conclusion: Preparing for A Brutal Peak Starts Now
What was predicted to be a relatively normal year for freight quickly became one of the most volatile markets we’ve ever experienced.
Since COVID-19 hit North America in March, we’ve seen volumes rise, fall, stabilize and absolutely soar. We can all agree, the freight market has taken us on one wild ride this year.
Now, here we are in August with tender rejections and volumes well above 2018 levels. And peak season is one month away. Make no mistake… Q4 is going to be brutal for shippers across North America.
Smart shippers are getting prepared now by:
- Testing their carrier network to find reliable partners
- Running a peak season RFP as rates are only going to go up from here
- Having the tough conversation with their executives and teams and reforecasting their budgets to fit the inevitable circumstances that lie ahead
Q4 is going to get ugly… but you don’t have to face it alone. We’re here to help.
At FLS, we have the experience and capacity you’re looking for. We have access to a network of over 400,000 trucks and we’ve been moving freight for North America’s leading shippers for 33 years.
It’s safe to say we’ve been through plenty of market cycles before. It’s our #1 goal to get your freight delivered on time, every time… and we have an excellent track record of making that happen.
As you look to expanding your shipping network for peak this year, please reach out and give us a try.