What is a Soft Market in the Trucking Industry?
Justin has been with ATS for over 13 years in varying roles. Following a five-year stint as a customer service representative with ATS Specialized, Justin began managing various sales and customer services teams where he prioritized putting the needs of customers first, day in and out. Today, as the director of sales, Justin's commitment to maintaining strong customer and professional relationships has only grown as he looks to provide a truly invaluable service at the highest possible level.
As a truck driver, you’re hearing all sorts of talk about “soft markets” and the “downturn” and the “recession.” You might personally know what a recession is because you’ve heard about the Great Depression in history books, but do you know what a soft market means in the transportation world?
The market conditions were great for truckers during the height of the pandemic, but the markets have taken a turn recently. That means if you came into the industry just a year or two ago, you might have no idea what’s going on. Seasoned drivers who’ve been in the industry for decades have survived plenty of ups and downs in the market, so they know what to expect. But chances are, if you’re a new driver, you’re a little worried about what’s going on.
How low will rates go? What should you be expecting? How should you prepare? Is it time to panic?
As the director of sales at Anderson Trucking Service (ATS), I’m monitoring markets all day, every day. While it’s a stressful time in the trucking industry, you shouldn’t panic.
In this article you’ll learn about:
- Soft markets
- Strong markets
- Stable markets
- How different markets affect you
- How to run effectively in any market
When you’re finished reading, you’ll have a good idea of what to expect moving forward and how you can prepare accordingly.
What is a Soft Market?
A soft market occurs when supply and demand are out of whack. The market is more in favor of supply. In the lens of the trucking industry, it means there are more trucks than freight demand. There are plenty of trucks but not enough freight to go around and keep every truck steadily running.
This can happen for several reasons. The trucking industry has a strong history and habit of ramping up its fleets anytime the market gets busy. They buy new trucks and hire more drivers. Then, when the market corrects itself and stabilizes, there’s not as much demand in the industry and drivers are searching for work.
When supply and demand aren’t balanced, rates drop and it becomes a customer’s market. Customers are savvy and have plenty of tools and resources at their disposal — more than they had even five or 10 years ago. They can see where demand is falling.
They can look at the Market Demand Index (MDI) from Truckstop.com to check the load-to-truck ratio and see that there are far more trucks than available loads. They act quickly and go to the spot market to find someone to haul their freight at a cheaper rate than a contracted rate.
Soft markets can also develop when less freight is being hauled on trucks and is instead hauled through other means, such as rail. There could be less truckload freight out there, even if the same amount of product is being produced.
It’s truly a perfect storm of multiple factors falling into place.
This is the market we’re in the midst of, due largely in part to that storm of factors all coming together. We’re obviously dealing with inflation concerns as well. Costs are going up so people are buying less right now. Retails over-ordered inventory at the end of 2021 and into 2022, so there is an overabundance of products on the shelves. But people don’t want to buy an abundance of goods, they don’t want to start major projects and they can’t afford to buy a new house.
In addition, there are still a lot of supply chain issues that are making the market worse. There might be demand for a product, but because manufacturers can’t get one piece to finish the job, the product is just sitting in a warehouse somewhere waiting to be finished and shipped.
How Soft Markets Affect You
Soft markets like the one we’re facing during 2022 are hard on drivers. Eventually, these changes in the transportation industry, like supply shortages and inflation, will trickle down to you.
We're in a period of uncertainty where everyone is waiting to see what’s going to happen. Because of that, people are waiting to buy durable goods and they’re not starting big projects. Less freight needs to be hauled on big trucks. For the driver, that means freight availability is lower and rates are down. That translates directly to less money in your pocket.
To compensate for this change, drivers need to make quicker decisions and try to run more miles. Because freight availability is down, you have to react quickly and take the load before it gets snatched up by someone else. You have to work twice as hard to try to make what you were earning just a few months ago.
What is a Strong Market?
A strong market occurs when there’s an abundance of freight that needs to move quickly and there’s less truck availability. We saw this in the last two years when everybody had freight needs. Every part of the country and every industry was trying to secure capacity.
Customers ignored contract rates and they were willing to pay above and beyond contract rates to secure the capacity to haul their freight. Basically, there was an abundance of freight and not enough trucks to haul it, so customers paid exorbitant amounts and additional fees just to ensure their product got moved.
We saw bidding wars and customers that were willing to pay a day of layover just to make sure they had an empty truck ready to go when the freight was ready to be moved the next day.
This isn’t the type of behavior you see in a soft market.
How Strong Markets Affect You
You have more flexibility in a strong market. You can pick and choose which loads you want to haul, where you’re willing to travel and so on and so forth. You can wait around for the perfect load and you’ll end up with several offers. Drivers can be more selective with their freight.
Loads pay a lot better in a strong market. Some drivers, because of this, will choose to work less and go home more often. Because the rates are so high, they’re still making just as much as they were maybe a year ago.
What is a Stable Market?
A stable market happens when supply and demand are balanced. There’s a healthy supply of freight and enough trucks to go around.
Customers are still willing to pay a good rate to secure capacity quickly and get their freight moving, but they won’t pay through the roof.
How Stable Markets Affect You
A stable market isn’t volatile like a soft market and it doesn’t move as quickly as a strong market. This type of market provides you with some stability. You might not be able to name your rate and be extremely picky about which freight you’ll haul, but you also won’t have to worry about a lack of load offers.
How to Run Effectively in Any Market
No matter what market you’re driving in, you want a stable company that will advocate for you and secure freight to keep you moving. However, there are some practices you can implement to help you run efficiently no matter what kind of market you’re in.
Learn how to move more loads, maximize your Hours of Service (HOS) and boost your income.
To be sure you’re working for a stable trucking company, review this article and check out the best trucking companies to work for in a soft market.