Noël Perry looks at the this moment in history; The highest level of freedom and access to tools ever, allowing transportation companies complete freedom of choice in the types of freight they run, on which lanes, and whether through spot or contract. How will this freedom play out in rates? Is contract becoming more volatile and hard to get? Will the spot market continue to grow?
Anticipating the launch of Rate Forecasting, the new week-by-week, lane-by-lane forecast from Truckstop.com and FTR, we sat down with Truckstop.com and FTR chief economist Noël Perry to talk about rates. This is the final article in a series of articles about the topic.
Nick: Hey Noël, thanks for all this rich insight into what happens with events like big storms or regulation changes. Last week, we were chatting about how contract usually gains a small baseline amount in the rates, say 2%, while spot will absorb a lot of the disruption and chaos and may gain from 12% to 20% in rates for a little while, and then come back down to a new baseline that is a bit higher.
Working in the spot market is easier than ever because of technology. Does that shift anything in mindsets or fundamentally or amplify the effect? What do you think the effect of the technology might be in ‘18?
Noël: The growth in the spot markets proves that anytime you make it easier to do something, people do more of it.
The same thing goes for supply chain design, because our products here have the same benefit for the demand side as they do the supply side. If I make spot prices more understandable, then I make the use of random shipping patterns in support of various strategies easier and more profitable. This suggests that there will be more promotions and that there’ll be more events like Black Friday.
And we’re seeing it aren’t we? What about Cyber Monday? That didn’t happen before. If you think about it from a supply chain standpoint, you wouldn’t do that kind of promotion because it’s so wacky. Under most circumstances you think you don’t want to sell everything all at once. But because it’s getting easier, people say, “Well, I can grab some share, and using this data I can keep my costs from going too bad, so I’m gonna do it.” So yeah, I think your point is will very well taken.
Nick: So the technology is making the spot market easier to use, so even your startup may say, “Well now I can have more flexibility with less risk and less cost as I try different strategies in going to market.”
Noël: Yeah. Startups are a good example of a spot market use, and it’s for two reasons. First off, when you fill the store the first time, you have to move a lot of extra inventory. And the second thing is that when you put stores in new places, you have to establish new lane volumes for those lanes, and it takes a while for the market to adjust. So a disproportionate amount of store opening volume ends up in the spot market. Plus, you probably do a promotion, don’t you? That increases volume all the more. So store startups are big users of spot, and therefore of Truckstop.com.
Plan a smarter supply chain with Rate Forecasting, the groundbreaking, lane-by-lane rate forecast which projects spot market rates for each of the upcoming 52 weeks from leaders Truckstop.com and FTR.