During the wild and woolly 2018, freight bid activity subsided as shippers searched for capacity wherever they could find it. As we have seen, 2018 was an anomaly, a one of a kind. As we pass the mid-point of 2019, the dynamics of the freight market have changed significantly from the prior year. Business volumes are strong but not at the levels of 2018. To meet shipper demands, many carriers added capacity to their truck fleets. The theme of 2019 is more capacity chasing more moderate freight volumes. What does this all mean from the perspective of freight rates?
Looking at the results of the most recent Morgan Stanley Truckload Sentiment Survey, only 14% of the respondents consider the current truckload demand to be strong while 62% describe it as neutral (supply and demand in balance) and 24% consider it to be weak. Three months down the road, 67% of the respondents expect truckload demand to be neutral while 15% expect it to be weak; only 18% expect freight demand to be strong.
Forty-one percent of respondents perceive truckload capacity to be abundant while 50% consider it to be neutral; only 9% categorize capacity as tight. Three months from now, as we enter the fall shipping season, 25% expect capacity to be abundant while 61% still expect it to be neutral; only 14% expect capacity to be tight.
The survey respondents were then asked for their views on the current and future state of truckload freight rates. Fifty-three percent of respondents have stated that their freight rates are below last year’s levels while 22% indicated that their rates were unchanged; twenty-five percent are paying higher rates. Looking ahead to the fourth quarter, 32% expect shippers to be paying rates that are below last year’s levels, 52% expect their rates to remain the same as the year before; only 16% predict that shippers will be paying higher rates as compared to the previous year.
What does this mean for freight bids that are planned for the second half of the year? The freight industry has done a major turnaround from the previous year. Shippers are in a stronger position tthis year o secure competitive freight rates. If business picks up in the latter stages of the year, carriers will also be in a good position to negotiate profitable freight rates. Here is a set of steps to consider.
Become a “Shipper of Choice” before Launching a Freight Bid
Shippers should remove inefficiencies in their freight operations before they launch a bid (https://www.dantranscon.com/index.php/blog/entry/time-to-become-a-shipper-of-choice). Otherwise a layer of additional costs will remain in place after the bid process has been completed.
Start with a Bid Strategy and “Keep your Cool”
Shippers need to stay focused on what they are seeking to achieve from their bids in terms of lanes, modes and cost savings. While there is anecdotal evidence of some LTL carriers faltering in maintaining pricing discipline, shippers should make sure the carrier partners they select commit to quality service, consistent capacity and competitive rates.
Carriers should not quote on every freight bid, nor is it a time to be timid either. Shippers are anxious to talk to new carriers, hoping to mitigate some of the upward pressure on rates they experienced last year or are seeing from their incumbents this year. This is the time for both parties to cast a wide net and engage with new carriers, brokers and shippers.
Get the Fundamentals of Freight Bids Right
Here is a link to a set of blogs on how shippers can conduct a professional freight bid (https://www.dantranscon.com/index.php/blog/entry/freight-bid-tip-1-obtain-buy-in-and-participation-from-the-operating-divisions). Dan Goodwill & Associates has been helping shippers with their bids for over 15 years. Since my company has also assisted carriers in responding to freight bids, here are some tips for transport companies (https://www.dantranscon.com/index.php/blog/entry/freight-bid-tip-1-obtain-buy-in-and-participation-from-the-operating-divisions). Both sides maximize their opportunities for success when they follow these or a similar set of steps. Shippers or carriers that take shortcuts (i.e. limit the number of carriers in the bid, limit the rounds of bidding, fail to audit the rates prepared by junior pricing analysts) will reduce the value of this exercise.
Use Professional Tools and Resources
If you haven’t conducted a freight bid before, seek professional help. There are companies like Dan Goodwill & Associates that have conducted dozens of successful freight bids over the years. There are some high-quality bidding tools (i.e. Bid$ense from SMC3) that are commercially available.
Note that there are tools available that can put loads out for bid. These are tactical, transaction-oriented techniques, not holistic freight bidding tools. In our experience, well-constructed freight bids that conclude with multi-year shipper-carrier contracts (https://www.dantranscon.com/index.php/blog/entry/creating-an-effective-shipper-motor-carrier-freight-agreement-part-1) can be a “win” for both parties.If you need help, contact me at dan@dantranscon.com or at 416 932-9701.
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