With traditional transport companies, modern third-party logistics (3PL) providers, and brokerage firms, shippers now have numerous options when it comes to transporting their goods. They can even opt to set up their own private fleet or sign dedicated contracts with carriers. The flexibility of today’s freight movement network allows shippers to navigate a wide range of service offerings, making it easier to accommodate their unique needs while responding to market fluctuations.
Four primary relationships serve as the foundation for the movement of goods. Firstly, shippers often contract common carriers, or trucking companies, either on a regular or spot-rate basis, to transport their freight. Secondly, shippers may choose to contract with carriers to operate dedicated routes, ensuring a steady flow of goods along specific corridors.
Thirdly, some businesses establish or expand their private fleets, taking freight handling in-house. Lastly, shippers can collaborate with an independent or fleet-owned brokerage or 3PL provider to manage and haul freight, leveraging asset-based or non-asset-based services. How does this work in the real world? Let’s take a closer look.
Freight Market Dynamics and Influences
Freight market conditions significantly affect the business plans of shippers and trucking companies. For instance, the state of the market may influence whether a company chooses to expand its private fleet or turn to brokers and the spot market.
Freight volumes, for example, can be impacted by a variety of factors, including price inflation, truck driver shortages, and the recovery pace of the supply chain after disruptions like a global pandemic. The list goes on. And yet, the picture may be more complicated than it looked at first glance.
In February, freight volumes saw a drop, and load-to-truck ratios—a key indicator of demand for truckload services on the spot market—were at their lowest since May 2020, according to DAT Freight & Analytics. This led to a weakened pricing environment for truckload services, with average national spot van and refrigerated rates hitting their lowest levels since September 2020.
Currently, freight rates, capacity, and the decisions on how to move goods are impacted by three market trends: high inflation, near-record diesel prices, and high interest rates. These trends could lead to lower consumer demand for goods, thereby reducing transportation volumes across all modes.
One result of these factors is the reduced demand for truckload services. This situation has been apparent for months and has led to an inversion in the truck market, where national spot rates have been below contract rates since April 2022.
The Growing Significance of Third-party Logistics Providers
The role of third-party logistics providers in the U.S. freight market is expanding, with many new players entering the arena. Well-established motor carriers are also offering additional services like logistics and brokerage operations. The continued integration of these disparate arms of the trucking and transportation sectors will only lead to better outcomes for all users, whether internal or external.
Increased supply chain complexity and the impact of global disruptions have led to an increased demand for 3PL services. Many organizations are recognizing the benefits of end-to-end outsourcing. More and more, they are increasingly willing to trust 3PLs to handle their logistics and supply chain requirements.
The fact is 3PLs now play an increasingly important role within the interconnected web of interstate and intrastate transport. Shippers and carriers have come to rely on their services and work with them in a variety of ways. And yet, this conversation goes beyond brokers by themselves.
The Role of Private and Dedicated Fleets
Operating private fleets is often a financial decision, allowing companies to have greater control over their operations. These fleets allow for added flexibility, such as employees who can both drive and handle other responsibilities. However, some companies may still outsource certain tasks, such as transporting goods to distribution centers.
Depending on market conditions, some companies may consider transitioning to dedicated operations. This strategy can be particularly useful when equipment ownership costs become too high. This often results in private trucking companies leasing out their power equipment and maintenance.
However, opting for a dedicated service can be a double-edged sword. While it can solve problems such as ensuring high-quality freight handling, it can also lead to potential issues if market conditions change significantly. Therefore, it’s crucial for shippers to carefully evaluate their options and understand the potential implications before making a decision.
In conclusion, the rapidly evolving freight market offers a plethora of options for shippers, providing flexibility and adaptability to various market conditions. Whether through contracting carriers, engaging 3PLs, or running private fleets, shippers can craft a strategy that best suits their unique needs, ensuring efficient, cost-effective freight movement.
Evolving Role of Traffic Managers and Freight Movement
Traffic managers are key players in the evolving freight market. Their primary responsibility is to ensure goods are transported as cost-effectively as possible. With the current slowdown in the freight market and spot rates dropping below contract rates, the role of traffic managers has become crucial in managing fleet relationships and strategizing freight movement.
A traffic manager may consider shifting some freight to the spot market to take advantage of lower rates without jeopardizing relationships with carriers they’ve built long-term business relationships with. It’s a delicate balance, but one that experienced managers can navigate successfully.
The dynamics between spot and contract rates also play a critical role in the freight movement industry. When capacity is tight, spot rates typically rise, providing leverage for fleets to increase their contract rates. In a way, these rates are intertwined, impacting not just the pricing but also the level of service offered by carriers.
In fact, motor carriers may commit to setting up dedicated fleet operations to handle specific routes within defined parameters. With most large carriers operating brokerage arms, they can distribute excess freight to third parties, ensuring smooth and efficient operations.
The Rising Tide of 3PLs in the Market
In the increasingly complex world of freight movement, 3PLs are stepping up to take on more responsibilities. Acting as the shipper’s traffic manager, they choose the carriers, effectively outsourcing for shippers. They’re not just about moving goods – they’re about managing routes and optimizing the activity within these routes.
Some 3PLs are even acquiring carriers when they see opportunities to enhance their services. These acquisitions can provide increased capacity in high-demand areas, ensuring their fleets are utilized to the maximum. In this sense, the lines between carriers and 3PLs are blurring, with both performing similar tasks and providing complementary services.
While the roles of 3PLs and brokers might seem similar, it’s crucial to understand their differences. A 3PL manages the complete transportation of the freight, acting as a one-stop-shop for shippers. On the other hand, a broker might handle the freight movement or work in conjunction with a 3PL or another carrier.
Private Fleets and Their Unique Position
Private fleets play a unique role in the freight movement ecosystem. Operating a private fleet can serve as a financial decision, but it’s often about having greater control over operations. From having drivers who can double up as salespersons to having dedicated routes, private fleets offer a host of advantages.
However, the operational costs can impact decisions related to private fleets. Equipment costs, for instance, can influence whether a company decides to own trailers or lease them. Some companies may even consider switching to a dedicated operation if equipment ownership costs escalate.
The Balance between Private and Dedicated Fleets
Switching to a dedicated operation could make sense under certain market conditions. However, it’s essential to understand that opting for dedicated service should be based on more than just cost containment. The desire for high-quality freight handling, predictable costs, and problem-solving should also factor into the decision.
It’s also worth noting that carriers might be hesitant to agree to contract prices for dedicated service during market peaks when they’re running strong. Consequently, shippers need to evaluate their needs and market conditions carefully before deciding to switch to a dedicated operation.
The rapidly evolving freight market offers a range of options for shippers. From contracting carriers to engaging 3PLs and running private fleets, shippers can tailor a strategy to suit their unique needs, ensuring efficient and cost-effective freight movement. However, it’s critical to understand that market dynamics, rates, and carrier relationships can significantly impact freight movement decisions. Therefore, shippers must stay informed, adaptable, and strategic to navigate this complex landscape successfully.