Logistics is hard. Everyone in every industry I talk to says their industry is hard. I believe them. I know Logistics is hard. There are certain areas of the industry that are easier than others. Overall, it’s a bunch of tough jobs and smart people coming together to keep the world alive. Through downturns and recessions, it’s just trucking, and once you’ve been in it a few years, you’re not likely to leave the industry. It gets in your blood and in your soul. It’s fast-paced, and there’s a camaraderie in it that you don’t fully grasp until one day you just do.

Having spent decades in the trucking and logistics industry, I've occupied almost every role imaginable, from junior positions to executive roles in both small and large companies. I've seen countless recent discussions about the disparity between low rates in the spot market and higher ones in the contract market. Although I'm no longer deeply involved in the daily movement of freight, I do miss the thrill of it. However, I currently work with fleets to strategize, understand their costs, and implement technologies that help them achieve their goals and increase their efficiency.

The market is weak. Some articles read that it’s strengthening based on the produce markets moving more freight. Other articles say that it’s not strengthening. It depends on how you slice the data. Some of us watch certain leading indices and are crossing our fingers that the rumors we hear on 3Q or 4Q are true. Overall, for those of us that have been around for many years, we call it business as usual, and this is the roller coaster that we have ridden since we joined this industry. 

I read a LinkedIn post today from someone mentioning how rude they were treated because they wouldn’t take a cheap load and how shocked they were that the industry has come to this. Unfortunately, this isn’t anything new. The old truck horn would beep, and you’d dial for dollars and chat up the broker back in the day and occasionally would get that answer way back when. There’s no new wheel that has been invented here. 

What is different today is that we were in a market in 2019 that had several carriers weakened by ELD mandates. Those carriers that were suffering and that had made it through found themselves impacted by COVID. They were injected with cash either through PPP, EIDL, or simply strong markets. They were in essence going out of business prior to COVID but they were able to grow through the next few years. Many of them did nothing to strengthen their positions. Many companies started up during COVID as they saw easy spot market opportunities. Many of them took actions that put them in worse positions and didn’t realize it. All these companies are now suffering in some shape or form. Adding to this, the cost of operating a truck is significantly higher today than it was just a few years ago, further fueling this fire.

As a carrier or a broker, what can you do to reduce your risk during challenging times? This isn’t going to be the last of these cycles. If you’re newer to the industry once you’ve survived this one expect to hit another one shortly after.  The severity of the downturn varies greatly.  During the better times, you need to focus on strengthening your sales and relationships as well as your efficiencies as this plays into the more difficult sale during the challenging times.

Over the years, I’ve observed the cyclical nature of the industry where the spot market has alternately favored carriers or shippers. This cycle now turns much faster than before. In my previous life working at a carrier with a logistics division, we strategized to reduce our exposure to the spot market, ensuring it accounted for no more than 5% of our total bookings. We concentrated on saturating our lanes with freight, leaning on our logistics side to solve issues if we became overbooked. Most of the time, our contract rates outpaced spot market rates. Occasionally, though, spot market orders far exceeded the contract rates. However, if contract freight met our needs and furthered our business goals, there was no need to haul spot market freight, regardless of the rate offered. For example, if I’m hauling 20 loads a week out of one location for $2500 for a total of $50k per week and I’m offered $5000 for a spot market load, why would I do that? I’m better off furthering my relationship with my current direct customer and conducting a contract market transaction.

Maintaining minimal spot market exposure allows you to manage your performance expectations effectively. It often means loading and delivering to fewer facilities, allowing your drivers to become more familiar with these facilities and vice versa. This familiarity promotes efficient freight management, increases the speed of moving it, likely reduces driver turnover, and ultimately boosts your revenue per truck per day.

A recent article revealed that the contract market rate is currently 59 cents per mile higher than the spot market, similar to last year's figures. If two single-truck operators each run 10,000 miles per month, with one running spot market and the other contract freight, the contract freight operator will earn an extra $70,800 annually.

Using the difference of 59 cents per mile between spot and contract market rates, if you're a 200-truck fleet hauling 70% spot market, there's a potential $9.9 million opportunity. If the fleet hauls 50% spot market freight, that opportunity drops to a $7 million opportunity. The difference of 20% in spot market freight equals $2.9 million in additional revenue annually for a 200-truck fleet running 10,000 miles per month per truck. I know fleets running these metrics. There's no math that doesn't justify implementing a robust sales program to capitalize on these opportunities.

For smaller fleets, the transition from spot market freight to contract freight can pose challenges. If you run one or a few trucks and can't sell directly to shippers or larger logistics groups, consider negotiating contract deals with freight brokers.

On the other hand, brokers should aim to build partnerships with carriers based on transparency and open communication. These partnerships can lead to business growth and risk reduction. Benefits include increased capacity, on-time service, improved customer communication, reduced double brokering, and less time spent covering loads.

Difficulties for smaller fleets transitioning to contract freight typically center around maintaining service levels. Smaller fleets simply don’t have the ability to recover freight if there’s an issue. Open lines of communication with customers is imperative when this happens. Small fleets that are unable to maintain service likely are pressing for too much utilization or have underlying issues they need to resolve. However, many small fleets deliver excellent service.

For larger fleets, a number of strategies are at their disposal. The first step, contingent upon fleet size, is to analyze the existing freight network to identify any lanes that are unprofitable or inefficient. The subsequent data can inform decisions to transition these lanes to logistics or to discontinue their operation altogether, redirecting trucks to more productive lanes. Once a comprehensive freight network strategy is established, sales efforts can be focused on addressing any remaining gaps.

Your sales strategy shouldn’t only target lanes but also be aware of equipment utilization. To any fleet, the right freight is important. The smaller the fleet, the more important it gets. Being aware of how appointments are made, are they drop and hook, what’s the velocity of the order and revenue per day per truck should be considered not only in the freight network but also in the sales strategy overall. 

Overall, Brokers, Carriers and Shippers can find they don’t experience the peaks and valleys of the shipper -vs- carrier markets if they cooperate and commit to consistent rates and keep them there with reasonable fluctuations. 

In synopsis, if you are a fleet that’s operating a large number of trucks and are running 50% or more spot market, I strongly suggest you shore up your freight network and sales strategy. 

If you are a brokerage that is not partnering with carriers to move your freight on a contractual basis, I strongly suggest that you start considering this strategy.  

If you are struggling with anything related to this article or want to discuss these strategies in depth, don’t hesitate to reach out for a discovery chat.

Written by: Nate Johnson, President of GLCS, Inc.