Trucking companies and their shipper customers have been riding the peaks and valleys of a pricing “roller coaster” recently, explained Derek Leathers, president and COO of Werner Enterprises. He says he’d like to get off the ride.
As reported by the Journal of Commerce, Leathers told the 2016 NASSTRAC Shippers Conference this week that “aggressive procurement behavior” on the part of shippers is driving truckload rates lower in a soft market. “I’m not casting blame, I’m questioning why we do it,” he said.
“We knowingly and willingly go into these cycle shifts with aggressive behavior and there’s a better way,” he told NASSTRAC shippers, carriers and logistics providers. That better way involves collaboration to keep long-term shipping costs low and still provide remunerative rates.
There is still more capacity in the truckload market than available freight, thanks to overly optimistic forecasts more than a year ago and a record-breaking round of new truck orders and sales in 2015. Pricing power has swung back to shippers and they’re not afraid to use it, JOC points out.
Logistics managers have told JOC.com they are being told by CEOs and CFOs to pursue double-digit savings from transport operators, the kind of savings which can gut partnerships and imperil value-added services carefully developed through collaboration in recent years.
“All it takes is one executive to question why rates have not dropped as fast as fuel prices,” one shipper told JOC.com. “You have to explain there’s more to truck pricing than fuel costs.” But that push for savings is harder to stave off when transportation is considered a “cost center.”
“Some customers are aggressively working to take advantage of the favorable shorter-term trends to the detriment of carriers,” Werner recently stated.
The trucking companies are sending a not-too-subtle warning that customers seeking “aggressive” price cuts when capacity is plentiful may be the first to feel pricing corrections when supply tightens again, which, Leathers anticipates, won’t be too long into the future.
“We’re seeing massive truck order cancellations,” Leathers said at the NASSTRAC conference –a real sign of capacity contraction the market is ignoring. “We’ve dropped truck orders by 40 percent and everybody’s acting like it’s not happening.”
Trucking capacity is going to contract sooner or later, Leathers added. “We want to be ready with the best trucks, the best technology and best drivers to catch freight when that happens.”
Knight Transportation President David Jackson expects truck capacity to contract even before the electronic logging device mandate takes effect December 2017.
“We think we’ve hit the bottom, in terms of supply being added to the market,” Jackson said. “We think supply is coming out of the market. We think we’ll see a little bit of progress each month as time goes on. By the time we get to the fall things are going to feel a little bit different.”
Full JOC article here.