Spot market load volumes and rates continue to move in response to the novel coronavirus, COVID-19. However, the changing rates are not solely the result of COVID-19. To keep total landed cost under control, shippers need to understand how spot rates will change in the coming weeks and how to avoid problems securing available capacity.
Using Various Freight Tactics to Reduce Costs & Streamline ManagementDownload White Paper
Challenges of Predicting Changes in Spot Freight Rates
Predicting spot rates has always been a challenge. When the market looks fine, a sudden shift—or a single regulatory change—can change the game. While data helps shippers and carriers account for changing spot freight rates, the current disruption is unprecedented. Shippers and carriers do have any recent crises to look to for how to navigate this event. Even the H1N1 crisis of 2009, also known as swine flu, did not rise to this level of severity and economic lockdown. As weak as predictions may be right now, the risks are greater for companies that lack visibility into freight operations, poor ability to automate replenishment processes, and a limited supplier or carrier network.
Spot Freight Rates in Response to Supply Chain Disruptions
Spot rates typically coincide with the peaks or lulls in global supply chain demand. When the market does well, spot rates will increase. As the market falls, spot rates decline. The COVID-19 pandemic has created a counterpoint to this commonality. Although the overall economy continues its downward spiral, spot rates are inching up as companies look to restock and meet the record-breaking demands of customers. According to Jeff Berman via Logistics Management:
“2020 is kind of closely following 2017 as a way for us to model things off of a prior year,” he said. “In the past three weeks, things have fundamentally decoupled from 2017 and shot upward. The differences between 2017 and 2018 are with 2018 arguably being the high-water mark of the decade. We are not there yet, but we are maybe halfway there. The next couple of weeks will be important to watch, but what we are seeing is that it will mainly be driven by load volume, and the past week was a near-vertical spike in load volume for posted loads in our network and our extended network. The working thesis is that capacity has not left the market but is being sucked up by large contract truckload shippers and are not using the spot market.”
In fact, spot load posts rose 4.6% between March 16 and March 22. Spot truck posts rose 2.4%. Van load-to-truck ratios rose 11.4%, and reefer spot rates rose 7.5%. All rates are climbing, and as the COVID-19 disruption unfolds, demand on spot rates will continue to climb. Now, it would make sense for shippers to leverage contracted capacity, but again, the capacity may simply be missing due to drivers unable to go to work or restrictions that govern travel.
How to Maintain Better Balance of Spot and Contracted Rates During Times of Crisis
Spot rate volatility is most severe in COVID-19 hot zones, including Seattle, New York City, San Francisco, and Los Angeles, reports John Paul Hampstead via Freight Waves. However, the sudden spike in New Orleans will undoubtedly push spot rates on Gulf states higher than previously expected. Moreover, the rising rate of testing for COVID-19 in the U.S. will contribute to a higher infection rate. As a result, shippers should follow these tips to help maintain control over spot rates and contracted rates throughout the duration of this crisis:
- Rely on data to make decisions about whether to use spot or contracted freight carriers.
- Avoid unnecessary stockpiling of freight.
- Work with more carriers to secure capacity in both spot and contracted rates.
- Focus on the safety of your team, augmenting staff with third-party agency employees or other staffing options as necessary and acceptable.
- Use the remote capabilities of today’s systems to encourage work-from-home for as many employees and supply chain partners as possible.
- Work with third-party logistics providers (3PLs), such as Cerasis, to rapidly increase available freight management resources.
- Consider working with nearby ESSENTIAL businesses to consolidate freight and avoid delays in shipping.
- Let the scalability and flexibility of a SaaS-based transportation management system (TMS) guide your team throughout this and future crises.
Deploying a SaaS-Based TMS Is Your Best Bet
There is no politically correct way to say it. Companies that adapt and make the changes needed to rapidly respond to demand changes and fluctuations with spot freight rates will endure. Those that fail to realize the value of advanced systems and automated, data-driven capabilities will risk long-term closures and even bankruptcy.