Historically, the freight market has been incredibly volatile. We need only look back to 2018 to see the negative impacts of a capacity squeeze on shippers, driving rates to record highs. Contrarily, in 2019, carriers have gone out of business due to excess supply. The motor carrier Celadon is perhaps the best (or worst) example of this, putting freight volatility on full display with the layoff of nearly 4,000 employees just ahead of the holidays.
By most accounts, the market will swing back to carriers in 2020. Morgan Stanley expects lower capacity and higher rates as we get deeper into the new year. And according to UBS, tariff uncertainty isn’t helping to solve the problem, creating choppy waters for shippers in the near future.
While the industry has become somewhat numb to this cycle of feast or famine, there are many who believe it has become unacceptable in today’s tech-enabled era. The short-term thinking that leads to unwieldy market swings must be replaced with a more holistic approach that is finally possible thanks to technology. It’s why we’ve seen such a massive migration of top engineering talent to logistics over the past few years, and it’s why the future has the potential to be incredibly bright.
As an industry, we have the tools at our disposal to solve the big problems at the root cause of volatility, and we can work together to create a fair, balanced system for both sides of the marketplace.
Trucking has traditionally been an unpredictable, opaque sector, with natural blackout periods occurring between pickup and delivery of freight. That is no longer the case, as America’s shippers now receive, analyze and act upon a tremendous amount of data that is specifically tailored to their unique supply chain systems, and the carriers they work with.
It starts with visibility. Technology has enabled shippers to know where their freight is at all times, when it will arrive at its destination, and if there are any issues along the way. Looking at truckload data in aggregate, you get a robust picture of the supply chain, enabling you to optimize for efficiency and assess any problems that are present. All of this points to a future in which all shippers no longer have to speculate what caused something to go wrong — they simply have that information on hand to make real-time decisions. Through smart data management, they can analyze historical trends to understand bottlenecks, optimize, and plan more predictably.
Pricing is also undergoing a massive shift. Powerful machine-learning algorithms predict trends faster and farther in advance than ever before. Modern-day platforms continuously ingest millions of data points to confidently deliver fair-market pricing across long-term contracts for shippers. What’s more, these algorithms learn as they go, so pricing is constantly becoming more accurate. What was once a fragmented and isolated data landscape has become an interconnected marketplace.
Long-term freight requires committed carriers to execute on it. This has historically been a challenge, especially for small and mid-sized businesses. But tech has effectively enabled digital brokerages to pool carrier resources together, generating better utilization of existing carrier assets and enabling capacity guarantees to shippers further in advance. From the carrier’s perspective, scaling up in this manner enables steady, predictable revenue and access to quality freight from major shippers.
Perhaps most importantly, technology continues to evolve the shipper-carrier relationship, creating transparency and accountability on both sides. For carriers, cancelling on short notice is much more detrimental than ever before, because it hinders their ability to receive future loads — not just from one shipper, but from all who use the digital platform and have access to carrier performance data. For shippers, the same is true: If you regularly cancel on committed contracts, that data is visible to carriers. Today’s carriers have more choices than ever before thanks to digital tools, making it easier to decline your freight in favor of a more desirable shipper.
To put it simply: Technology has created a fundamental opportunity to improve how shippers and carriers do business together. Today’s digital tools are making the industry more efficient, more predictable and more reliable for everyone involved. As shippers and carriers adapt, there will be a natural evolution of the business model — one that puts an end to the boom-and-bust market cycles that plague today’s supply chains.
Ahmad El-Dardiry is chief revenue officer and general manager of shipper solutions at Transfix.