The logistics industry is witnessing a remarkable rise in the number of Request for Proposals (RFPs), marking it a record high year. It is expected that GDP will have slow growth between now and thru 2024 – 0.50%-1.00% on average. While this could potentially signal growth and expansion in the manufacturing sector, it also poses a unique set of challenges for shippers. Notably, with the freight market at a low point, rates are poised for a gradual increase. This imminent change, coupled with a diminishing number of carriers, might lead to a decline in acceptance rates. This is exactly why it is crucial for shippers to pay close attention to these market shifts to maintain efficient and cost-effective operations.
Freight RFPs: An Indicator of Market Dynamics
Traditionally, a high number of RFPs signify healthy market conditions, fostering robust competition among freight service providers. However, the current rise in freight RFPs coincides with the freight market’s bottomed-out rates. In fact, spot for Reefer bottomed out back in April 2023. This situation can be attributed to several factors, including ongoing supply chain disruptions and varying capacity constraints that have led shippers to explore more competitive freight options.
While lower rates might initially seem beneficial to shippers, they could create a precarious situation in the long term. As rates start to rebound, there is a likelihood of price instability, resulting in unexpected cost escalations. This situation calls for shippers to remain extra vigilant while negotiating contracts to ensure their operational costs remain within predictable margins.
Decreasing Carrier Capacity: The Impending Challenge
The logistics industry is also grappling with a concerning trend of carriers exiting the market. Between January and May 2023, 31 companies with 100+ trucks have been forced to leave the industry, with current truck utilization at 88%. The underlying reasons range from unsustainable low rates and slim profit margins to increased operational costs. The impact of this trend is twofold. First, the reduction in carrier capacity may lead to a decrease in acceptance rates. Secondly, it could spur a supply-demand imbalance, further increasing freight rates.
For shippers, this means they may need to revisit their carrier selection process and possibly redefine their route optimization strategies. In times of limited carrier capacity, shippers will need to broaden their carrier base to ensure continuity of service. They may also need to rethink their service level agreements to factor in the potential for higher rates and lower acceptance.
Navigating the Changing Landscape
The rise in freight RFPs, impending rate hikes, and decreasing carrier capacity present a complex scenario for shippers. To navigate this dynamic landscape, shippers need to adapt and rethink their strategies. Leveraging advanced analytics can play a crucial role in understanding these market shifts and forecasting potential impacts. Proactive communication with carriers to understand their operational challenges and plans can also help in better planning and maintaining robust, mutually beneficial relationships.
Additionally, exploring technological advancements, such autonomous freight procurement, provides another effective way to mitigate the impact of increasing rates and diminishing capacity.
While the increasing number of freight RFPs may be a testament to a bustling industry, the underlying market dynamics pose challenges that require shippers to remain alert and adaptable. As we navigate through these market fluctuations, shippers that take a proactive, strategic, and data-driven approach will likely find themselves better positioned to weather any pending storm.
This blog was written by Michael Paul. Michael is VP of Sales at Sleek Technologies and brings 35+ years of supply chain operations, customer success & sales expertise to the table across CPG, food, retail, automotive & industrial.