May 2, 2019

Shippers won't blow their freight budgets in 2019, Coyote predicts

Tumbling trucking rates could begin rebound by third quarter, but recovery will take time, 3PL says.

By Ben Ames

As the U.S. trucking market slumps downward from its historically high freight rates of 2018, shippers should take advantage of opportunities before the cyclical market inevitably begins to tighten up again, according to the third party logistics provider (3PL) Coyote Logistics.

Chicago-based Coyote, a unit of UPS Inc., says trucking freight rates could begin that rebound for another rate climb as soon as the third quarter of 2019, according to the firm's Q2 2019 version of its "Coyote Curve" Outlook, Coyote Chief Strategy Officer Chris Pickett said in a webcast today.

Coyote's forecast model analyzes three concurrent cycles - seasonal demand, annual procurement, and market capacity - to help supply chain managers identify recurring patterns that can lead to better informed supply chain and logistics decisions.

The Q2 Coyote Curve shows that the market is now in steep deflation following its historic highs of last year, as current truckload supply now materially exceeds demand, and contract rates can even exceed spot rates.

That deflation happened "further and faster" than Coyote's own previous forecast had predicted, due to three factors, Pickett said in the webcast:

  • "overblown fears" that the December 2017 federal mandate for electronic logging devices (ELDs) would hamstring fleets by restricting their drivers' hours of service;
  • a jump in freight capacity fueled by a "binge" in the number of new truck orders placed, due to capital freed up by federal tax reform; and
  • weaker truckload volume demand than models expected despite the "relatively healthy" economy.

Since the trucking market's deflation will likely continue for another quarter before beginning to rebound, shippers can be confident that they probably will not exceed their 2019 freight budgets due to unplanned exposure to volatile spot market rates—which are typically higher than contract rates—as many companies did in 2018, Pickett said.

Instead, shippers will likely see record-high "primary tender acceptance," which is the rate at which a truck agrees to carry a booked load, rather than denying the cargo in hopes of landing a more profitable deal.

Shippers can also look forward to a muted effect of "seasonal demand dislocations" such as crop cycles, hurricanes, and retail peaks, which will have less of an impact on spot market rates than they did in 2018, he said. The best strategy for staying profitable in the current business environment will be to "play the long game" and stick with popular approaches like striving to be a "shipper of choice," said Pickett.

"To remain competitive, companies must understand the forces that affect market shifts," Pickett said in a statement. "The market is vast, fragmented, and dynamic, and market capacity cycles are often only visible in the rearview. From the Coyote Curve, we know seemingly sudden market shifts are moves-in-the-making several quarters in advance, and by comparing current cycle data to historical data, it can help forecast the trajectory of the market."

About the Author

Ben Ames
Senior Editor
Ben Ames has spent 20 years as a journalist since starting out as a daily newspaper reporter in Pennsylvania in 1995. From 1999 forward, he has focused on business and technology reporting for a number of trade journals, beginning when he joined Design News and Modern Materials Handling magazines. Ames is author of the trail guide "Hiking Massachusetts" and is a graduate of the Columbia School of Journalism.

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