CarrierDirect report looks at market conditions and ways to stay ahead of the competition

By Jeff Berman, Group News Editor
September 04, 2015

A new report from Chicago-based freight transportation and logistics consultancy CarrierDirect released this week examines current freight market conditions and what logistics and supply chain stakeholders need to do and know in order to stay one step ahead of the competition.

Entitled, “Survival of Smartest: Freight’s New Competitive Frontiers, CarrierDirect offers up detailed analyses of the current state of the economy and its correlation to the freight and logistics sectors, aftereffects of West Coast port operations following the port labor strike earlier this year, year-to-date freight growth, and the increased usage of less-than-truckload dimensioners, among other areas.

Looking at the economy, the report noted that the U.S. economy has continued to show modest growth, benefitting from continuously improving unemployment rates and consumer confidence levels that have injected demand into the marketplace. And this is happening at a time in which the most recent GDP estimate for the second quarter headed up to 3.7 percent from its initial estimate of 2.3 percent.

“Things remain somewhat of a mixed bag in terms of the economy,” said Erik Malin, CarrierDirect executive vice president, in an interview. “As for how that impacts freight transportation, there is no real evidence that available capacity will loosen up further.”

And CarrierDirect President Jett McCandless pointed to some ‘micro events’ such as spot market prices dropping, with macro indicators suggesting tighter capacity in the form of a true capacity crunch is coming even though freight rates could see a bit of softening over the next six-to-eight weeks.

The CarrierDirect executives explained that the current capacity environment at the moment is not materially improved from where it was a year or so ago, especially when gauging the negative impact the implementation of ELDs could have on the truckload market upon expected implementation in 2016.

For the most sophisticated shippers that have the best understanding of market dynamics, McCandless said that contractual rate increases between 2.5-to-4.5 percent are within reason. As for the spot market, the declines over the last sir or seven weeks have been noticed for intermodal, while intermodal contractual rates are close to where they are on the truckload side. And on the less-than-truckload side, he described the current spot market rate environment as static, with most LTL carriers showing price discipline, with not a lot of cost reductions, as most LTL carriers have shown a lot of control in recent months.

The next two-to-five weeks will be critical in determining what is going to happen over the next six-to-nine months on the rate side,” he said. 

LTL dimensioners: The report noted that the proliferation of LTL dimensioners is not going away and, even with high initial costs, it stressed that they enable LTL carriers gain better visibility and knowledge of the costs in their network to augment depressed profit margins and ultimately, carriers’ return on invested capital.

Malin said there have been a lot of success stories regarding LTL dimensioners, noting that the technology is here to stay, with the impact of dimensional pricing providing LTL carriers with a greater ability to profile shippers and freight types to better gauge freight costs, coupled with a better knowledge of freight moving in their networks and a better understanding of how that freight impacts margin levels.

One of the most telling findings of the report focused on how ongoing growth in tonnage levels going back to 2009 have led to record levels of freight being moved to date in 2015, with the report observing that shippers and carriers have found creative ways to manage capacity and asset networks as tonnage levels continue to rise. Malin said much of this stems from growth and focus on asset-light and brokerage operations to help better manage capacity overflow and backhaul miles.

West Coast ports: During the West Coast port labor situation earlier this year, there was a fair amount of supply chain fallout, which the report said exemplified how there was a degree of overreliance on West Coast ports serving as a gateway into the U.S. for importers, as well as likely leading to importers considering other options.

McCandless and Malin said this highlights the need for shippers to take a more diversified approach to import options, rather than using the same approach for all imports. Malin likened it to an investor putting 100 percent of his capital into one stock.

What’s more, even with the myriad challenges this situation created in terms of lost funds and product, McCandless observed that most people’s memories about these types of events tend to be short, with economics of doing business almost always winning out.

“This was a big deal, but at the same time it can be tough to truly tell how it impacted the market for the better part of this year,” he said. “The Southeast region of the U.S. was very busy, but it is not clear if that was due to a population shift of people retiring there or how much of it was due to rerouting. There were also some imbalances of rail, which is a great indicator, with increased surge charging from the East Coast to the West, which would have never happened a few years ago. The big swings and major disruptions have been tough all year to dig in and get good data points into what is actually happening.” 

The report also cited some key themes for what industry stakeholders need to do to stay ahead of the competition and leverage their strengths, including:
-building a freight brokerage to compete with best in class organizations and use that density to limit backhaul and deadhead miles
-Intelligently align with 3PLs to create pricing complementary to asset movement and only provide it to select 3PLs that truly focus on partnership and engage 3PLs to help lower margin by sharing margin and margin information;
-“ditch” EDI because shipment tenders can take up to 2 hours to be received, adversely impacting perceived performance, coupled with how using EDI for shipment status provides customers with stale data, increasing outbound calls;
-dynamically managing margin to understand customer behavior such as rate elasticity to harness the opportunity to maximize margin through psychology rather than pricing and invest in technology that recognizes shipping patterns to make it easier for shippers to move freight while simultaneously growing profit via API; and
-start dialogue with carriers to create strategies that balance their network and improve operating performance