Truck capacity may be easing in some markets or in some lanes, but it is not abundant universally, and constraints on the addition of new capacity will keep pressure on U.S. contract transportation rates despite the spot market price correction this spring, speakers said during a JOC webcast Wednesday.
“I would say if you’re expecting a very rapid decrease in your transportation budget as you move through the rest of this year and next year, you’re going to be sorely disappointed,” said Jason Miller, associate professor of logistics at Michigan State University. “I don’t see the prices going down substantially even from where they are now. Maybe a little bit here and there. We’re not seeing the demand destruction that you would need to start seeing a substantial price decrease in 2023,” he added.
Mike Regan, co-founder, and chief relationship officer at TranzAct Technologies said the number of constraints on capacity is rising. “The reality is that today it costs a lot more money to operate a truck than it did a year or 18 months ago,” said Regan, adding that drivers are being paid 20% to 35% more than two years ago. The cost of equipment (when it is available), is also rising alongside the cost of trucking insurance. These higher rates are leading larger trucking companies to abandon market-based pricing that follows spot rates.
“Shippers have been used to market-based pricing for years, where the carrier said we’re going to price based on the fact that we want to capture as much freight as we can and become as big as we can,” said Regan. “The carriers have substantially abandoned that model in favor of cost-plus pricing. They know how much it costs to operate a truck and they know what their margin requirements are.”
Regan said that companies need transportation spend management plan that is adaptable to events as they happen. That means more analysis of potential “black swan events,” and more collaboration with carriers. “You need to get ahead of being constantly in a reactive mode,” he said. “If you want to be proactive and strategic in 2023, it pays to have a game plan today.”
Source: Journal of Commerce / Shipco Transport Inc.
