This commentary appeared in the print edition of the Jan. 6, 2020, Journal of Commerce Annual Review and Outlook.
With a healthy overall economy and the Dow Jones reporting November was its best month since June, problems in 2019 had more to do with a surplus of trucks rather than a lack of freight. The robust market of 2018 catapulted truck orders to new heights, and now we have more equipment on the road than freight to fill them.
One of the toughest issues in the last quarter has been that spot rates have dipped below contract rates. That makes negotiating contracts with the larger shippers for 2020 difficult, with many of them seeking historically low pricing. Some shippers are opting for three- or six-month contracts instead of annual ones to lock in the best pricing while rates are low.
Shippers have benefited from ample capacity and low rates, but a shift may be on the horizon. Warehouses that were overfilled during the pre-tariff scare in 2019 are quickly working through those inventories. Manufacturing and imports will gain traction to resupply, and capacity will tighten.
In addition, fleets and owner-operators that couldn’t stay in business last year due to the soft market will also help create tighter capacity conditions this year. The backlog of truck orders also should find its equilibrium by 2020, creating a trickle-down effect for capacity that could increase rates. As a result, it may be midyear before we see increases in both spot and contract rates.
We can’t talk about a new year without discussing the rapid digitization of the industry and how, undoubtedly, it will affect capacity and pricing. There will be an abundance of data from carriers, shippers, and warehouses at our fingertips, coupled with improved analysis tied to TMS and CRM systems. Top 3PLs are reaping the benefits of optimized efficiency with insights into predictive load-matching, trend analysis, and maximized backhaul utilization. These technological efficiencies will help drive the market next year into a more balanced price structure for all sides.