Guest commentary by Mike Mulqueen, JBF Consulting
Freight transportation professionals have become so used to the abnormal that normal times seem a bit unusual. Two years ago, 3.5% GDP growth, along with implementation of the Electronic Logging Device mandate, led to a “Shipper Armageddon,” as demand for transport services far outstripped capacity. Freight budgets were blown as shippers scoured the Earth looking for carriers to haul their goods. Like Lucy with the football, the carriers (Charlie Brown, in this analogy) believed that this time was going to be different. Demographics had changed, the driver shortage was upon us, and market dynamics had fundamentally been altered. This time is different! Rate increases will hold! Well, wrong again, Charlie Brown.
The excess capacity brought into the market was immediately met with a slowing US economy and decreased shipper demand. The Shipper Armageddon of 2018 quickly flipped into this summer’s “Carrier Armageddon.” Rates, especially spot rates, took a beating as carriers scrambled to find loads. The market was especially hard on those carriers, primarily smaller trucking firms and owner-operators that were reliant on the spot market. Reduced rates, bankruptcies and driver layoffs were employed by carriers as means to regain market balance.
While the last two years have been chaotic, we appear to have reached a precarious equilibrium. The latest GDP numbers seem to indicate the threat of a US recession is receding and consumer spending is holding up well, even as industrial growth has sputtered. Rates have rebounded slightly indicating that we have likely reached the floor. While disruptions can and will occur, as for now, we are in a relatively tranquil period.
I provide that background as an introduction to the Freight Market Index report recently launched by BluJay Solutions. The report does a fabulous job of visualizing the impact that the various “Armageddons” have had on cost and service metrics over the last few years. The report, however, is much more than simply an interesting historical view. The intrepid reader will use this analysis to more fully comprehend the impact of freight market variability and develop mitigation strategies and KPI targets specific to their operations. By doing so, transportation professionals can make a dramatic difference to the bottom lines of their respective organizations. This is borne out in the BluJay analysis when one looks at the differences between top and bottom performers. For example:
- In the first quarter of 2018, low-performing shippers had primary carrier Accept / Decline rates under 60% while the highest performing organizations maintained 90% Acceptance rates
- When spot rates took off, low-performing shippers were forced to go the spot market 15% of the time, while high-performing operations relied on it for less than 5% of their volume
- In the peak of the capacity crisis, we were seeing low-performing shippers pay nearly 30% premiums on their routing guide rates, while high-performing organizations were able to keep the premium to less than 5%
These differences are stark, and for transportation professionals, this is great news. It provides proof that the efficacy of a shipper’s freight operations is not solely driven by the vagaries of the market, but instead, outcomes are specific to individual organizations who spend time developing, testing and implementing strategies and policies that drive competitive advantage.
The monthly Freight Market Index is designed to provide transport leaders with insights and analysis that can be used as the catalyst for change. We hope you find it useful and informative.
Mike Mulqueen is a Partner at JBF Consulting and leads their Technology Strategy Practice.