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For many U.S. supply chain professionals, 2019 has been a lot kinder than recent years. Instead of dealing with record-high spot rates and capacity constraints, many shippers are feeling the benefits of today’s deflationary market, including record-high tender acceptance rates and more manageable transportation budgets.
As Chris Pickett, Coyote Logistics Chief Strategy Officer, reported in a previous Longitudes article, this has a lot to do with the volatility of the truckload market and the fact that we’ve moved from a historically high market capacity environment to the historically low one we’ve been in this year.
At Coyote, we work with more than 70,000 carriers and 14,000 shippers across all verticals, sizes and modes. Between our scale and our more than 13 years of experience in the logistics industry, we’ve collected a massive amount of market data. This wealth of data has allowed us to better understand not just our network shippers and carriers but also how the market moves at a macro level.
We call our market capacity model the Coyote Curve, which helps us more accurately forecast where the U.S. truckload market is likely heading. This model has proven accurate and helps our customers both anticipate market shifts and mitigate their effects.
What makes market rates go up?
We believe the basic principles of supply and demand guide the market. That means rates can only go up if there is excess demand relative to supply.
By looking at other supply and demand indicators — such as the Cass Index, ATA Truckload Volume and DOE Diesel Index — we can build conviction in what our model tells us and better identify when we’re heading toward a larger shift in the market.
So, what do we know about today’s market?
It is continuing to drop further and faster than predicted, with the Spot Market Index closing at - 24.9 percent (-2.4 percent lower than our Q2 forecast projected). However, all Coyote indicators point to a market inflection point where demand is starting to increase again, which will drive rising spot market rates.
Although we won’t get back to an inflationary environment overnight, the Coyote Curve indicates that as we head into the busy Q4 months, we’re also heading into the next cycle in our model.
Seasonal dislocations can cause muted effects on these overall market cycles. Everything from unplanned catastrophic events such as hurricanes to planned seasonal demand spikes are felt across the industry.
When the market is in a deflationary state, where supply exceeds demand, are those surges felt as strongly?
Since we’re now in hurricane season, let’s start there. Weather tends to be a secondary driver compared to seasonal surges like produce season.
Even if there is a significant storm, we don’t anticipate a large impact on the market — outside of local effects. In the event of a major storm, the impact on the U.S. transportation market is likely benign, especially given the current number of available trucks compared to freight volume.
What about a large seasonal demand surge?
A good example of a planned event like that is the peak holiday season. Imports to support increased retail activity around the holidays tend to surge into West Coast ports in September and October. In turn, brick-and-mortar and e-commerce retailers surge from the middle of November through the middle of January to support both outbound gift giving and inbound returns. This surge in volume means trucks are migrating to service these markets for as long as this increased demand exists.
Because the market is currently down, we don’t anticipate that this holiday season will be as impactful on overall spot market rates and service levels as it was last year.
However, surge capacity challenges exacerbate other supply chain complexities, especially in port and border regions. Those challenges will still cause retailers to look for creative capacity solutions — such as power only, leased trailers and mobile storage — to help manage their volume spikes.
Even in today’s market, Coyote recommends that shippers and carriers prepare for these seasonal dislocations, especially the planned ones. Knowing where and when volumes will spike and having a plan in place for managing this time of increased competition is the only way to successfully navigate large freight volume surges.
By sharing quarterly Curve market updates with shippers and carriers, Coyote aims to help everyone make better short-term seasonal decisions, as well as long-term strategic decisions that bring a little more order to the market chaos.
That’s why I’m co-hosting our Q3 U.S. Truckload Market Forecast webinar on Aug. 22 at 12 p.m. CST to expand on some of the peak retail season insights.
The webinar will focus on helping you understand:
Can’t make it on Aug. 22? Register anyway, and the recorded webinar will be available on demand.
Stay tuned for additional market updates, including the next edition of the Coyote Curve in late Q4. Visit the Coyote Logistics website for more Coyote Curve resources and market insights.
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