Is the Shipping Market Finally Stabilizing?
While supply chain disruptions continue to capture headlines around the globe, recent shipping data implies the trucking market may be beginning to stabilize. According to Uber Freight, truckload contract rates are heading towards negative areas compared to last year. In early 2022, spot rates began to swiftly decrease to the point of them falling below contracts rates for dry vans and reefers. For as quickly as rates increased in 2020 due to the COVID-19 pandemic, rates are just as quickly decreasing in 2022 as the market begins to correct itself.
Contract rates vs. spot rates
In the trucking world, contract rates are negotiated prices between a freight provider and a shipper over a long-term period. Contract rates are typically utilized by larger trucking companies with consistent shipping orders. On the other hand, spot rates are prices set based on current market pricing. Spot rates are more volatile compared to contract rates due to the ever-changing market. These rates can change hour to hour and are often used by smaller trucking companies with less predictable shipping orders. For this reason, contract rates are most common in the trucking business due to their more stable prices.
Basic economics would tell us that contract and spot rates are decreasing due to decreasing demand; however, Uber Freight’s freight volumes have been holding steady, which leads us to believe that decreasing demand may not be the reason. This is largely due to Uber Freight’s growing number of carriers, which is evident by their acquisition of Transplace towards the end of 2021. The 2021 addition has allowed Uber Freight to tap into other modes of transportation such as intermodal rail and less than truck load (LTL). As a result, the shipping market is experiencing loosening capacity, allowing Uber Freight to continually take on freight volume, while also taking advantage of lower shipping rates.
What do these trends mean for your shipping business?
It can be difficult to sift through these variable, and rapidly changing shipping market trends. During these times, it is paramount to understand where the market is heading so that you can best prepare your business for the upcoming year. If you are curious to see how these trends may affect your business, contact a distribution expert at Barnes Dennig today! We’re here to help.