Collaboration key to riding out volatility: shippers, 3PLs

Collaboration key to riding out volatility: shippers, 3PLs

Shippers, third-party logistics providers, and trucking companies say they must be frank in their discussions about rising costs and collaboration to be more efficient. Photo credit:

With pricing swings seemingly larger and more rapid than ever before, shippers and motor carriers alike say collaboration and transparency is vital to survive the volatility in the United States freight market. Despite regaining some leverage this year, shippers certainly haven’t forgotten the pro-trucking market of 2018, and small changes in truck pricing, capacity, and demand may signal another bounce-back year for operators in 2020.

Shippers, third-party logistics providers (3PLs), and trucking companies said at the JOC Inland Distribution Conference they must be frank in their discussions about how costs are rising and how they can work together to be more efficient and learn to save money elsewhere.

The open and honest dialogue is important given the level of market uncertainty heading into 2020. US gross domestic product growth is expected to slow this year to 2.3 percent and the economy will further decelerate to 2 percent growth in 2020 and 2021, according to IHS Markit, parent company of The Bloomberg Intelligence forecast calls for 2.3 percent growth this year, 1.8 percent in 2020, and 1.7 percent in 2021. The freight market, however, has been so soft that Coyote Logistics predicts spot market truckload rates will be higher in January and May 2020 than the same period this year. Contract truckload rates will struggle to remain flattish in the first and second quarters before a potential rebound in rates in the latter half of 2020, according to Coyote.

“Most shippers probably won't see contract rate increases [early next year]. But the question is going to be whether a lot of shippers will reset contract rates down so that spot market rates overtake contract [rates] by the second quarter [of 2020], and you see all the routing guides fall apart just like late 2017,” Chris Pickett, chief strategy officer of Coyote Logistics, and author of the Coyote Curve, said at the conference.

Stephen Gniadecki, vice president of supply chain operations with protein bar maker RXBAR, said the issue is as much about the quality of service as cost. The cheapest carrier or 3PL might provide poor service, so saving every last dollar isn’t always the best idea, he said, adding that finding a good transportation partner at a reasonable price is the right approach, especially because his company delivers product into a lot of grocery warehouses.

“I am sometimes worried about the demand that less inventory and ‘on-time, all-the-time’ [delivery] puts on our carrier partners from a safety perspective. What are we as shippers doing to alleviate any of that potential stress, or are we doing enough? Those are the sorts of things that keep me up at night,” Gniadecki said. “The two things that matter to us are predictability and safety.”

Insurance costs a hurdle

Safety is one of the hurdles that can make it difficult for carriers to survive. Werner Enterprises, for example, has been subject to two “nuclear verdicts” in as many years. Werner was hit with an $89.7 million judgment last year involving a fatal crash in 2014, which the company has appealed. Earlier this month, the company disclosed a $40.5 million judgment for a fatal accident in 2017. In addition to potential settlements and fines, insurance costs rise relative to an operator’s safety record.

“Insurance cost is one thing we're seeing as a barrier for many of the small carriers to remain in business when it comes time for insurance renewal,” said Mitchell Highsmith, vice president of Bibby Transportation Finance.

“It gets back to what is the actual safety record that you historically have posted,” added Geoffrey Muessig, executive vice president of Pitt Ohio. “So if you're posting an exceptionally good one, there is an insurance market out there, and for you. I think if you have a questionable one, it’s a real challenge.”

Contact Ari Ashe at and follow him on Twitter: @arijashe.