What a difference a few months makes. The highly anticipated truckload capacity crisis and the ensuing truckload rate party lasted from late 2017 through late 2018. Beginning in early 2019 – surprise – the rating party was over. It feels like carriers have quickly gone from the best party since deregulation in 1980 to potentially the biggest hangover ever!
Shippers need trucks to move their freight from point A to point B. Transportation for most shippers is a cost item and, as with all costs, the objective is to minimize while maintaining certain operating, risk and compliance issues. It is not the brokers’ fault – they are in business to provide the capacity to shippers and to provide freight to carriers. The freight belongs to the shippers, and the fragmented truckload carrier market allows them to minimize cost in most cycles.
When they need trucks, shippers talk about partnership, driver issues, reasonable
scheduling, consistent freight, etc. However, when capacity is readily available, they change their tune to price, service issues and production problems. This behavior is especially heinous in this cycle because most reputable carriers have increased their cost structure by raising driver pay and investing in new equipment; the carriers are stuck with these costs. Carriers are not without blame as they bought trucks in record numbers during 2018, with the result being more capacity and downward rate pressure.
Running a compliant and profitable truckload carrier is not for the faint of heart. Hard work and attention to detail are the cornerstones of success.
Carriers that are successful at managing this complex environment are the preferred carriers of the reputable shipping industry. These shippers underwrite their carriers to make sure they meet a number of requirements, including safety and compliance, insurance, ability to provide capacity, financial stability, ability to provide drop trailers, driver quality, and turnover, service, etc.
Shippers avoid their carrier underwriting responsibilities when freight is moved via the brokerage community. Typical broker underwriting of carriers is limited to operating authority, insurance, and safety verification. In general, large carriers turn to brokers to fill gaps in their freight networks, while small carriers rely on brokers as their primary freight source because they do not have a sales team and do not have the ability to attract the attention of major shippers. The result for shippers is that they indirectly support the carriers with whom they would not directly engage and thereby perpetuate the overcapacity that has muted freight rates since deregulation.
Carriers and shippers need to get on the same page and support each other. Fortunately, there are shippers and carriers that currently enjoy this relationship. The long-term success of the industry depends on fair rates, driver-friendly freight, and most importantly real and binding agreements that specify freight lanes and volumes. Unfortunately, until something changes to lower the entry barriers to the industry, the invisible hand of economics will continue to favor the shippers and impede consistent and long-term carrier profitability and viability. Thus has it always been, and thus shall it ever be.
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