Many of us who’ve been in transportation procurement for a while have experienced our fair share of disruptive events that lead to trucking price instability. In fact, it can be argued that in logistics, we are working in a perpetual state of disruption.
We believe this state of constant disruption can be a predictable “cycle” and managed through three key strategic decisions your organization must make.
What are the Causes?
Truckload rates paid in the spot market and in contract pricing are highly affected by market demand and supply of equipment/resources and many other underlying factors. Much like traded financial commodities pricing, there is a direct correlation between supply and demand with truckload and intermodal container services and the rates we pay.
While we’d like to say rates are only affected by supply and demand, there are many components to why rates move up and down over time.
Some factors have a steady predictable impact and are less market volatile, while other factors have a high degree of correlation to supply and demand disruption.
Here a partial list of a few drivers of rate change:
Diesel Fuel Cost
Insurance Premiums
Tractor/Trailer Manufacturer and Upkeep Costs
Engine Efficiency and Emissions Regulatory Changes
Driver Hours of Service and Required Driver Standards
Changing State and National Regulations
Seasonality of Shipping Demand
Weather Disruptions/Pandemic
Mode Shift Based on Consumer Behaviors
Labor Cost and Availability
Union/Non-union Labor Collective
National/Regional Cost of Living Fluctuations
Stay Educated on Trends
A lot of factors go into the rate you pay per mile to move your goods. The one thing we know from years of experience is watching the indicators above is critically important to minimizing your exposure to unplanned disruptions. Being armed with data on the key drivers of cost and trends is critically important. We use many sources of from DAT, Morgan Stanley Index, CASS, US Bank, and dozens of other industry reporting sources from various logistics and consulting organizations like Gartner, Freightwaves, Breakthrough Fuel, Uber, Cleveland Consulting, and Stephens. Along with these great sources, we have had particular success understanding the patterns and where we are at a high level in contract and spot rate pricing by utilizing the Coyote Curve®.
Since 2007 they have tracked YOY rate change in Contract and spot OTR rates. What it reveals is over-the-road trucking rates generally follow a pattern following highly disruptive events like economic crisis, major hurricanes, once-in-a-lifetime winter storms and global pandemics where supply and demand become unbalanced.
The Green line is the average “spot” rates and the blue is “contract” rates since 2008.
For more information on this report, use the
We tend to say that each one of these disruptive events are a “once-in-a-lifetime event," but they seem to be happening every 3-5 years.
The other thing to notice from the Coyote Curve® is that the degrees of rate fluctuation YOY between the ups and downs are becoming much more severe. Is this an anomaly or should we plan for bigger disruptions to come? We aren’t statisticians, but the trend sure looks to be worsening.
//3 Keys to Get Off the Roller Coaster
Armed with knowledge about where we are in the cycle is critically important. But it’s not going to solve any of your challenges to keep costs under control or ensure you have the access capacity to meet customer demands when supply is low.
The keys to success in our experience have largely aligned in three places:
Find and stay with committed service partners whose network and services align well with yours. There is a balance between having too many "one trick ponies" and too few national players absent of competition.
Utilize a state-of-the-art transportation technology integrated to inventory/planning management systems (to optimize transportation modes, consolidated orders, understand sourcing and ordering decisions at unit cost level), and minimize the //Dead Air you ship.
A robust 12 month plan supported by a 3-5 year growth and change plan that educates your transportation partners and helps them support predictability pricing and access to capacity within their network.
If you’re serious about flattening the peaks and valleys and creating strong, long-lasting service relationships with your transportation partners, the //3 Keys should all be working together. The absence of any one of these //3 Keys will result in degrees of chaos and disruption within your Supply Chain.