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.
What happened to the U.S. #truckload market and why is it so different from last year? We'll help #shippers and #carriers answer these questions (and more) during tomorrow's market forecast #webinar. Learn more and register here. https://t.co/WOyHbt2bq0— Coyote Logistics (@CoyoteLogistics) May 1, 2019
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:
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."