As we begin 2020, we can anticipate more balance in the transportation marketplace, according to industry sources. When looking at the classic cycle of the U.S. truckload market, the next six to nine months will be a transitional phase. We just hit the bottom of the market after experiencing oversupply, and now we’re near an upturn. Most analysts are thinking we might start to feel some market parity in the second half of 2020.
After doing this for 30 years, I know the marketplace always goes through the four primary phases of oversupply to undersupply, and then transition periods of early cycle balance recovery and late cycle balance recovery. At the beginning of 2020 we’ve hit an interesting spot!
Cycle continues to evolve
While there are different levels of amplitude (tension or slack), the amount of time we stay within a phase of the cycle can vary depending on attributes of the market at the time. The truckload market ebbs and flows as demand and supply enters and leaves the market with economic conditions.
We are seeing early signs of a market that has bottomed out which means there is the most supply available to demand or the softest we think the market can get. So, from the visual, when we see demand start to increase, to absorb the supply, or the supply contracts, as a result of carriers reducing the number of new truck purchases, and their efforts to contract their fleet sizes, we’ll see early signs of capacity pricing strength. But first glints of pricing strength are often an indicator that we have bottomed out and we might expect a change in the TL market.
When referring to the for-hire TL market, we’re looking at 10-20% of the market that is considered the “spot” market.” The spot market is transactional in nature with commitments for capacity and pricing made between shippers and service providers. It is the leading indicator of the broader market, so when we feel a shift in spot, we’ll likely feel tension and price pressure in about three to five months in the committed market.
Supply and demand forecast
Despite multiple variables at play, economists are forecasting a reasonably healthy economy this year with GDP forecasts at a 2% year over year growth rate. In terms of available freight, economic and market analysts suggest for-hire truckload volumes will be plus or minus 0.5% in 2020.
When forecasting for supply and demand, the supply side is incredibly important. It’s not just about the economy and freight movement in the market. We also need to look at how the carrier community divests and invests.
If cyclical patterns hold true, as we move out of the oversupply phase into our early recovery phase, we could experience some contraction of supply, as carriers work to bring capacity in line with demand, and as a result, tension, and pricing power. Orders for new trucks in 2019 suggest conservative behaviors from the carrier community with likely purchases below replacement needs in 2020. This will result in a net loss of capacity.
We will also be watching the impact of used truck exports to foreign markets and the net impact of recent bankruptcies. Exports are forecasted to be at historical averages. Separately, most trucks and drivers displaced by the recent bankruptcies are now employed by other carriers.
In summary, it seems that demand is forecasted to be up slightly and supply down. All these moves are less than alarming. They are opposite forces that help bring the market closer to parity, thus creating an environment that is healthy for both the service providers and the shipping community.
How to succeed in 2020
How do you get capacity at the best price? Strategy is important to stay in sync with this transitionary time in the marketplace. Now is the time to employ a forward-thinking approach to secure all modes of transportation, including truckload, LTL, and intermodal.
Work with a 3PL, such as C.H. Robinson, that has the data and scale to give you an information advantage during this time of market transition. C.H. Robinson can also give access to a global suite of services to meet all of your logistics challenges while staying on budget.
Carriers are also invested in aligning with C.H. Robinson as we help them secure the most attractive and predictable freight, which allows for better planning, higher yield, and higher driver retention. In fact, research done in the past decade shows shippers with a rationalized supplier base that is based on awards aligned with the service provider’s interests and abilities results in the best performing route guides and lowest price paid.
Shippers and consignees should also work to reduce dwell times (how long it takes to load and unload). To get the freight covered at the best price with high quality, reliable service, dwell patterns must be evaluated closely. For shippers, dwell is correlated to the price you pay, because for carriers, it correlates to fleet yield and driver turnover.
There is no question this is the time to plan for the next market cycle as we move into increasing balance followed by tension. Connect with a C.H. Robinson supply chain expert for help creating a winning strategy for 2020.
For more specifics on what the market shift looks like please watch my interview with Adrian Gonzalez at Talking Logistics.
Fig 1: Market cycle is an adaptation of ACT Research Market narrative in 2018.
Fig 2: ACT Research December 2019