Following a record year of freight demand in 2021, carriers operating in the spot market were given a blank check when it came to naming rates. Consumers were able to pay off a pile of credit card debt thanks to the federal stimulus, and with cash to spare and little else to do, they resorted to internet shopping and increased spending on durable goods such as furniture and household appliances.
In the meanwhile, capacity was extremely limited. Many carriers quit the sector after the most recent slump in 2019, while others left during the turbulent period preceding the pandemic’s onset in 2020. Many of those who remained had not yet relocated to places with high demand, such as Los Angeles.
In sum, there was a significant mismatch between supply and demand, allowing carriers (and brokers) to profit handsomely on increasingly desperate shippers.
Shippers choose to raise their contract fees after a year of coping with supply chain issues. As a result, contract rates began to grow in the fall of 2021 and really took off at the start of 2022. Contract rates had climbed more than 23 percent on a yearly basis by the beginning of March when spot rates began to slow.
Even in the absence of any external pressures from the economy as a whole, increased contract rates would have resulted in decreased tender rejections. Lower tender rejections would have resulted in fewer loads falling to the spot market, causing spot rates to fall.
Shippers are gaining pricing leverage that was previously reserved for carriers. Shippers are likely to argue for reduced contract rates in their next bid cycle.
Shippers can, however, take advantage of lower prices from carriers in the spot market, just as carriers used to seek higher spot rates from shippers.
Spot vs. contract: poll findings for 2022
FreightWaves surveyed 1,364 shippers, carriers, and freight brokers in June to discover more about current opinions about the spot market.
Shippers’ readiness to relocate their loads to the spot market is slightly underestimated by brokers and carriers. However, a majority of all three parties agree that spot rates only need to be 11 percent to 20 percent lower than contract pricing before shippers begin to change their habits.
Shippers are more cautious about long-term pricing trends than some brokers and carriers believe when looking for savings in the spot market. Almost one-fourth of shippers believe contract pricing must outperform spot rates for three to four months, however, only one-fifth of brokers and carriers agree.
Nonetheless, over half of shippers, brokers, and carriers think that one to three months is an appropriate time limit before acting.
