The writing stood out in red on the wall for shippers at the end of 2019. According to DC Velocity, all signs indicated the freight market would favor carriers over shippers for trucking 2020 cycles. Freight carriers overall experienced mounting financial pressure and deflationary markets through 2019, which began in the first quarter. Multiple major over-the-road (OTR) carriers shuttered operations over the past two years, including New England Motor Freight and 640 different trucking companies, says Business Insider. Then, the unthinkable happened. Coronavirus grew to become an international crisis that stands to affect the global supply chain in new ways and continues to wreak havoc. What will happen after all? Let’s take a closer look to find out.
What Exactly Did Experts Predict Would Happen for Trucking 2020 Rates
Freight tonnage grew through 2019 despite the losses of top carriers., and even last year, we at Cerasis reported in depth what the ATA U.S. Freight Transportation Forecast to 2025 showed.
“Truckload volume will expand 3.5% per year from 2014 to 2019 and then by 1.2% per year from 2020 to 2025. This projection reflects the anticipated performance of key commodities and freight-market segments
Truckload carriers are increasing their use of railroads to handle intermediate and long-distance trailer hauls through the forecast period.
Less-than-truckload (LTL) volume is forecast to rise from 145.0-million tons in 2013 to 177.7-million tons in 2019 and then to 204.6-million tons in 2025— which would translate into an average annual growth of 3.8% from 2014 to 2019 and of 2.5% during 2020 to 2025.”
While these facts mean more volume, they also should have resulted in higher freight rates by carriers. Yet, carriers struggled to keep track, and quickly, spot rates replaced contracted rates as the best-case rating option. Different views of the market exist, and the simplest way to categorize a shipper versus carrier market is as follows:
- Shipper markets involve spot rates lower than the contracted rates.
- Carrier markets have rates lower for contracted than spot rates.
Enter the Coronavirus
The coronavirus represents a threat to the integrity of the supply chain. As the Chinese government moves to quarantine and prevent the spread of the virus, it continues to cause problems. The virus now exists in the U.S. after travelers returned or were evacuated from Wuhan. Now, here’s the irony. The biggest threat to the supply chain is the risk of its transmission via ocean freight moves, as workers who are on board or work in the process of ocean shipping, may be on board at the origin, and without showing systems, may have the virus, travel to another country, and transmit the virus to others. However, the real problem lies in a loss of imports to the U.S., including raw materials, needed to continue strong manufacturing domestically. According to Greg Miller via American Shipper, the measures taken to contain the virus have virtually stopped freight movements in China. So, carriers are trying to make up for that lost revenue.
The drive to continue profitability and recover from an epidemic is nothing new.
“If we look at other terrible viruses that have spread in the past, what we know for sure is that once they are contained and things go back to normal, they don’t go back to normal. There’s huge stimulus, usually by China but also by other economies, to try to get back a bit of what has been lost during the [epidemic] period.”
Since carriers stand to increase profitability by keeping relationships with shippers alive and well, regardless of the challenges of navigating coronavirus, the spot market rates must decline. Shippers have grown accustomed to lower spot rates over the last two years, and with this new threat on the horizon, the same trend must continue for carriers to remain open for business.
Where Does the Carrier Market Stand Now
At the close of January, the carrier market was strongly favoring shippers. The load-to-truck ratio declined by 0.4 on neutral van volumes, and the average van rate was later than all DAT’s top 100 van lanes. Reefer freight fell to 3.8 from 4.9. Meanwhile, flatbed rates have ticked down to $2.14 per mile, down from $2.18 in January. The evidence points toward a bottoming out of spot rates and a continuation of a strong shipper’s trucking 2020 market, says Overdrive Online.
Other problems also exist.
The total number of truck orders for 2020 will decline, notes Transport Topics. As capacity declines, spot rates will increase, but for now, carriers cannot afford to take that risk. It’s that easy. Moreover, spikes in diesel could push the market up slightly, especially as OPEC gears up to increase rates in response to the coronavirus. With that in mind, spot rates will still likely fall well below the predictions from the industry in Q4 2019.
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Only time will tell how the state of trucking 2020 rates will evolve in the wake of the upcoming elections in the U.S, the rise of coronavirus, and the uncertainty in the market. Regardless, shippers need to take advantage of the lower spot rate market now and start thinking about how the trending trucking 2020 factors will eventually return to a carrier-favored market. It is time to invest in the technologies and systems needed to ensure long-term stability and avoid disruptions caused by market fluctuations.