Since the decline of the COVID-19 pandemic, shippers have gradually seen negotiating leverage return to their hands as freight volumes fell below the number of available trucks and the market soften drastically.
What is a soft market?
Currently the Outbound Tender Reject Index (OTRI) — a measure of how often carriers reject their contracted freight in favor of pursuing higher rates or on the spot market — is at it’s lowest point since the economy shut down in 2020. Carriers are highly unlikely to turn down any of their contracted freight for the spot market simply because more favorable loads aren’t being offered. There were 61% less loads being posted in May 2023 on the DAT spot board compared to May 2022. Carriers are posting 10% more trucks when the same time periods are compared.
Translation: there is far more demand from carriers for loads to haul than there is volume of loads to haul.
How did we get here?
The answer lies in the volatility of the market and consumer purchasing habits during the COVID-19 pandemic. Brands were unprepared for the panic-buying that ravaged retail shelves when lockdowns were first put into place – remember the toilet paper shortage? – and they countered by increasing shipments. In the back half of 2020 and all of 2021, the OTRI hovered at the mid-to-high 20% mark. Carriers were rejecting one fifth of their contracted freight because they had many loads to choose from and could pick the highest paying (or otherwise more favorable) loads. During this time, prices reached record highs for many lanes and shippers had no choice but to pay to get their product on the shelves.
As many retailers finally caught up on inventory (or struggled with overstocks) in 2022, available loads dwindled. The OTRI sank with it. Carriers had to take the freight that was offered to keep their operational costs covered. The market continued to soften steadily over the year. Even the seasonal freight spike during the holidays was muted heavily compared to previous years.
The market has only continued to soften in 2023, and many experts believe that the bottom has been found. The current OTRI sits at 3%.
What to Focus on in a Soft Market
If your brand is simply shaving pennies off transactional transportation costs and making no further attempts to improve your supply chain, you may be losing out on opportunities to drastically improve the overall profitability of your business.
So, what can you do as a shipper to improve your overall supply chain strategy to prepare for the eventual market flip?
Re-evaluate Your Carrier Network
A carrier or 3PL who is not meeting your service requirements in the current market conditions cannot be counted on to meet your standards when capacity inevitably tightens. Carriers are currently desperate for regular freight so trucks that care for your shipments, are on time for appointments, and accept tenders are not difficult to find. A high frequency of service failures from carriers or 3PLs in a soft market means that your need to hit tight retail deadlines as a CPG brand moving product to retail shelves is not being considered appropriately. These issues will only worsen when capacity tightens again.
Diversify Your Carrier Portfolio
Many transportation managers are being bombarded with calls about their freight but remain hesitant to onboard new 3PLs or carriers because operations are running smoothly. This will not always be the case. When the market flips back into the carriers’ favor, these calls will dry up and your brand may lose the opportunity to improve the quality of its transportation operations and maximize gross profit margins.
In current market conditions, transportation managers likely have some extra bandwidth that could be used to onboard and evaluate new carriers. Testing new carrier performance against your existing network can lead to win-win relationships as the market shifts. Managers can use this time to add carriers and 3PLs that handle modes such as rail, LTL, or any mode that your network lacks.
Utilize this down time to fill gaps in your supply chain before rates go up again and onboarding new carriers becomes difficult.
Build Proactive Relationships
Now is the time to develop relationships with your transportation providers into partnerships. Whether it’s carriers you’re already working with or carriers you onboard during this time, emphasize your brand’s need for communication, agility, and performance. Discuss your supply chain goals with your transportation partners and take note of theirs to strategize for win-win shipping solutions.
Shippers should certainly aim to secure cost-savings where they can in a soft market. But if that is their only goal, they are likely selling themselves short. Transactional carriers that are performing well now may leave in favor of higher paying freight when the market flips. Utilize this downtime to address inefficiencies, shore up gaps in coverage, and strategize for the future. Partner with a 3PL that knows the requirements of your retailers and can provide insight into your supply chain.
About Zipline Logistics
Headquartered in Columbus, Ohio, Zipline Logistics has a 16-year history of being a consistently recognized, rapidly growing, and reliable 3PL that exclusively services the consumer-packaged goods sector. Their uniquely qualified carrier network, world-class team of retail transportation experts, and state-of-the-art shipper intelligence tools maximizes client revenue and gross margin by eliminating out-of-stocks through optimized, on-time in-full performance.
Zipline’s processes were built specifically to resolve the most critical logistics challenges faced by consumer goods brands shipping into retail. Ninety-seven percent of Zipline orders are destined to land on a retail shelf in stores like Walmart, Costco, Bath & Body Works, Whole Foods, and Best Buy.
