On this week’s Freightvine, host Chris Caplice speaks with Ron Lazo, Vice President at transportation management software developer Manhattan Associates, on aspects of the COVID-19 era that are likely to stay with us and how they’ll define the “new normal.”
The sudden economic shutdown leads to extreme volatility
Trucking market volatility in the past few weeks has been unprecedented, even in comparison to other significant national economic disruptions such as 9/11 and 2008’s Great Recession. Despite the gravity of the situation, and the health risks involved, the collaborative response of shippers and carriers has kept essential goods stocked on the shelves of the nation’s retailers. It remains a source of inspiration, and drivers continue to get the proper credit they deserve.
Rapid changes stress networks, testing the adaptability of carriers and shippers
Carriers are adapting on-the-fly, implementing a distributed workforce model, something that was unfamiliar to the industry pre-pandemic. The speed of change amounts to a real-time stress test. It serves as a proof-of-concept for the model’s viability. In the long-term, a hybrid model is likely to persist. The efficiencies of the distributed model will complement carriers’ and shippers’ traditional preference for personal contact. Trucking is a relationship business. Working and negotiating face-to-face will remain part of the equation.
Volatility is driving the development of more flexible networks
Carriers are adapting their operations and making changes to their networks in real-time. The networks that functioned so well before COVID-19 were thrown off balance and speed-to-solve is taking precedence over lengthy analyses. Network volatility is manifesting in two ways. First, lanes are disappearing due to depressed demand, such as those for auto manufacturers. Second, volumes on remaining lanes are in flux. These two conditions aren’t easily solved simply by charging higher rates; the ability to scale capacity also plays a crucial role. For example, one carrier was able to reallocate dedicated capacity away from an auto manufacturer – whose lane volume went to zero – and towards OTR capacity for “essential” industries. Before the outbreak, trucking assets remained in their respective silos (dedicated vs. over-the-road). On the shipper side, there is sufficient financial incentive to reposition dedicated capacity to alleviate OTR shortages. This leveraging of enterprise-wide visibility is going to stick around long after most COVID beards are gone.
Collaboration between carriers and shippers continues to grow
The groundswell of collaboration that emerged during the capacity crunch of 2017-18 is proliferating. Procurement events have become about aligning networks and ultimately achieving a win-win outcome. Factual conversations around data have become the norm. In the end, this level of open communication enables shippers and carriers to communicate effectively about network efficiencies and deficits, achieving an optimal price and service solution across the entire network.
The stability of a signed annual contract is all well and good. But what is it worth if, in six months, 50% of the volume is being executed under different terms? Annual procurement events satisfy the shipper’s desire to lock-in capacity but are increasingly being supplemented with more frequent “mini-bids” as necessary.
Increased visibility has made ELDs a blessing in disguise
The rise in the use of data during procurement events is a direct result of the adoption of electronic logging devices (ELDs). That adoption was a lengthy process because, at first, ELDs were perceived as an invasion of driver privacy. However, with the increase in ELD adoption, the data captured has led to a more-sophisticated collaboration between carriers and shippers. Ultimately, both want to achieve cost minimization: shippers by paying the least while satisfying their service requirements; carriers by running the equipment as efficiently as possible. Hard facts and figures from technological investments are enabling outcomes that benefit both parties. The pandemic has also brought the forward need for contactless shipping and receiving. Contactless was being examined due to its potential to reduce friction in the process. It has since come to the forefront to deal with the risks of COVID-19.
It’s one more thing from the “COVID-19 era” that will be with us long after a vaccine and effective treatments have made lockdowns and takeout-only service mere memories.
This episode recap was written by Reid Johnson, FMIC Product Manager at Chainalytics.
Market Update & Forecast: 7 May 2020
Dry Van
Active contract rates were flat while spot rates were down by 10%. Replacement rates rose by 2%.
Temp-Control
Active contract rates were flat and spot rates came down 10%. Replacement rates were up 3%.
Intermodal
Active contract rates were flat as were spot rates. Replacement rates dropped by 3%.
Spot rates for Dry Van and Temp-Control were down by double-digits, yet replacement rates were positive. This dichotomy can be explained by a slow roll-out of new contract rates from a bid. A lane imbalance across industries is also a likely cause. Some lanes have been reduced to zero volume, some are seeing huge increases, and other lanes are new altogether.
