07/20/2020 by Bradley Palmer
Just like the fuel pumps, rates change in the spot market daily. When fuel prices dipped below $1.50 per gallon in April in some areas, the fuel producers dropped their price based on demand. Fuel inventories filled up and sat in storage tanks as America’s transportation needs nose-dived on stay-at-home orders. There are just a handful of refineries in the country. They can control their price to the limits that the free market allows it. Looking at the truckload economy with thousands of for-hire carriers working with thousands of brokers, the free market likewise dictated the price for truckload services during the initial COVID-19 outbreak. Rumor has it the brokers manipulated rates paid to hard working, essential trucking companies. Why bother supporting your broker if they are only going to treat you that way when the chips are down?
A broker allows shippers to connect with the spot market. Their value is finding reliable cost competitive capacity and streamlining the complicated process of servicing freight. The classic broker revenue model requires it to forecast the cost to produce that service and mark it up to the customer. In a market that sees increasing capacity and decreasing costs, a lot of brokers will cut their rate in anticipation of lowering costs in the short amount of time they have to stay relevant with their shippers between the hundreds of calls they get from other brokers and asset providers. This rush to cut the market on anticipation of increased supply and lower costs is likely the root cause of what many of us experienced a couple of months ago. By the time you read this, it might be even more clear.
A relationship between a carrier and broker should reflect mutual trust, dedication to communication, and similar core values to get us through the highs and lows together.
Creating a strong business relationship with a 3PL can create success for small- to medium-sized fleets by connecting them to shipper customer networks. Yes, a small carrier can call on a big shipper and solicit work and in most instances that’s a wonderful way to build your headhaul business if you can find a shipper that will work with you. Generally though, it’s difficult for a large shipper to work with a carrier that can’t commit at the drop of a hat to cover same-day freight, or drop trailers, comply with 90-180 day pay terms, or a host of any other regulatory or supplier management costs.
Trinity Logistics has over 40 years’ experience meeting those shipper needs and individually focused on small fleet owner’s success. We want you: the hard working, essential trucking company to succeed. We continuously look for ways to drive clarity and transparency in shipment information so that you are well informed and prepared the first time you receive load information. And we look for ways to connect with you electronically to minimize the tracking phone calls.
The free market provides options to the carrier community. You can choose which 3PL you work with. We recognize that, respect that, and that’s what drives Trinity to be the 3PL of choice for our core carriers. We are proud of the reputation we’ve earned among carriers that work with us regularly. If you know a fleet owner that works with Trinity, ask them how it’s going.
The next time rates change, let’s ride together. As a carrier that meets our expectations, you’ll find that Trinity sticks with our core carriers more often than other 3PLs through the ups and downs.
One variable that impacts supply and demand throughout the year is the region you are in. The best way to describe supply and demand with shipments is with an example. Let’s say you’re a carrier who hauls oranges. Around March, oranges are plentiful in Florida. Rates tend to be higher because carriers have more customers to choose from, so they often charge a premium rate. On the flip side, in a month like October, oranges aren’t as abundant. Rates tend to be lower around this time because there are more trucks than there is available freight.
Another major reason why rates vary is due to the economy. A pandemic, such as COVID-19, can and has had a negative impact on the economy, causing brick and mortar stores, restaurants, and bars to shut down. As a result, shippers have less products to ship. According to the Transportation Intermediaries Association, there’s been a 48% decline in volume since March 2020. The April 2020 truckload revenue was also down 16.7%. Major public truckload carriers have also taken a major hit. Knight-Swift’s revenue in quarter one of 2020 was down 7% while Schneider’s revenue was down 12%. Shipper customer’s revenue hits at the stores and plants cut deep across all parts of the business. Internally shipper customers have had to make headcount and spend cuts to protect the longevity of their business. Even hired indirect expense, like freight costs, are impacted deeply and this directly impacts spot rates.
When your broker knows they can depend on their core carrier in tight capacity markets, they will work with you to protect the business.
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