If you pay attention to the transportation industry, you probably already have an inkling of what’s happening with the market.
Following nearly two years of record highs, freight rates in the spot market are trending down. If the trend continues, you may hear whispers of a declining trucking demand or whispers of a recession. While there’s certainly been a slowdown in demand, that doesn’t mean your career in trucking is futile; it just means you have to learn to run a bit differently.
With freight rates dropping, you may be asking yourself, “Will I still be able to make the money I’m making now?” This article will attempt to answer that question.
As an operations manager here at Anderson Trucking Service (ATS), it’s my job to help both our drivers and driver managers succeed. That means training my team of driver managers to keep them in the loop on the latest trends in the industry so that we can all be successful.
In this article, I’ll help you understand:
- How the spot market works
- How fluctuating rates influence your pay
- How to be successful in a down market
When you finish reading, you’ll have a good grasp of how you need to adjust your running style to meet the demands of the industry and continue to drive profit.
What is the Spot Market?
The spot market is where non-contracted freight is contracted for immediate hauling on a bid-basis. The spot market identifies in real-time what is happening in the freight market) Freight in the spot market needs to be moved in the very near future. A company has freight and they need it moved immediately, so they’ll pay higher rates just to get the freight moved as quickly as possible.
That means rates are always fluctuating. A price can be vastly different from day to day. It could be $2 per mile one day and $4 the next. Utilizing online load boards like Truckstop.com and DAT, as well as Freightwaves and the Cass Freight Index®, will give you an accurate look at real-time freight rates.
There are no long-term contractual obligations between customer and shipper with the spot market. Quotes are provided on-the-spot, hence, the spot market name.
The spot market has a huge influence over the trucking industry’s pricing structure. Contract freight rates typically hold steadier than spot market rates, but if the spot market is down for a long period, contract rates will eventually go down too.
Trucking companies sign contracts with companies to haul their freight for one or two years. That makes the company contractually obligated to haul a specific number of loads for them each week for a set price. However, contracts can be negotiated. When the spot market rates rise, trucking companies may renegotiate rates with their customers. When the spot market crashes, customers may do the same thing with trucking companies.
Customers in contract with trucking companies won’t continue to pay contractual rates of upwards of $4 per mile when they can go on the spot market and pay other drivers to move the freight for $1.80.
Learn more about how freight brokers utilize the spot market.
What is the Current Spot Market Outlook?
Unfortunately, at the time of this writing, the spot market has taken a hit. Compared to last year, some (but not all) freight rates in the spot market have dropped as far as 30 to 40 percent.
So how did we get here?
2018 was unprecedented. Rates were through the roof and there weren’t enough drivers. Every trucking company was trying to secure as many trucks and drivers as they could to take advantage of the great freight rates. It was essentially a “name your price” market.
The rates started to trend downward in late 2019 and then COVID hit in 2020. It put a huge kink in the supply chain. With labor and parts shortages, there were delayed shipments and fewer products entering the U.S.
To compensate for that, customers started to over-order. 2020 and 2021 saw rates rising up and down like a rollercoaster, with 2021 mirroring what happened in 2018. Again, companies could name their price and customers would pay it because they needed their products shipped as soon as possible.
Flash forward to 2022. Quarter one is typically the slowest time of year for shipping, so rates are usually lower. But this year, coming off the high at the end of 2021, customers extended peak pricing into quarter one of 2022.
Now we’re in the midst of a perfect storm: China is shut down again, customers are dealing with the impact of over-ordering and consumers have begun to change their spending habits. Instead of buying physical products, they’re spending their money on experiences instead.
As a result, the spot market rates have dropped.
How Do Lowered Freight Rates Influence My Income?
Unfortunately, the current down market can have a very direct influence on your income. If you continue to run the same way you ran in 2021, you won’t make the same amount of money.
The down market will affect you differently depending on what type of driver you are. As a company driver, you’re more than likely on forced dispatch, so your dispatcher will keep you running to be successful. If you’re an independent contractor or an owner-operator, you’ll need to adjust your driving habits.
Depending on the trucking company you work with, you might primarily run one type of freight or a combination of both. If you work for a logistics-based carrier, the freight you’re hauling is from the spot market. If you’re operating under your own authority, unless you have built up a customer base, you’ll also be utilizing the spot market to secure freight.
Some trucking companies offer a combination of contract freight and spot market freight, which can offer great opportunities for drivers. They’ll have contract freight that keeps a fairly steady rate. In comparison to the spot market, it’s like a lazy river. Prices in the spot market can mimic a rollercoaster. That means, as a driver, you can rely on steady prices from contract freight and then you can utilize the spot market as needed.
To give you an example, if companies need to bridge the gap between their usual freight lanes, they can rely on spot market pricing to secure loads for drivers. This freight can get you back into a freight lane and/or out of a backhaul market.
For instance, you could be on a special project moving freight out west to Utah or Washington for $4 per mile, but because it’s a backhaul market, you might not be able to find freight leaving that area. Rather than deadheading, your dispatcher will find you a load in the spot market. It may not pay nearly as high as $4 per mile, but it’ll get you out of the area with some money in your pocket rather than deadheading hundreds of miles.
How to Be Profitable in a Down Market
To succeed in the current market, you have to change the way you’re running your truck. For instance, if you’re used to running fewer miles per week because the freight rates are so high, you’ll need to change your strategy.
The following strategies will help ensure you’re still turning a great profit in 2022.
Run More Miles
Some companies naturally run their drivers hard to put on 3,000 miles per week. Some trucking companies will push their drivers to run 1,500 to 2,000 miles per week. The companies that are pushing drivers to run fewer miles will be changing their strategy.
That means, if you’re a company driver, you can expect to be given more loads to increase your mileage week over week.
If you’re an independent contractor, you’ll need to mimic this strategy. Because freight rates are lower, you need to put more miles on the truck to get the gross revenue you need to succeed.
Keep in mind that more miles mean more money spent on fuel, maintenance costs and other expenses. You must factor this in when you’re selecting freight.
Be Open-Minded About Load Offers
If you choose your own freight, you’ve more than likely gotten pretty selective with which loads you’ll accept and which you’ll reject without thinking twice.
In a market like the one we’re running in now, contractors get offered these lower rates that they’re not accustomed to, and they’ll reject the freight. You can’t run that way in 2022 and expect to make what you did in 2021.
In the past, maybe another load would come along that paid well, but rejecting freight nowadays will cause you to sit.
Last year, you could afford to reject a $2 per mile load to deadhead to a $3 per mile load. With rising fuel prices and lowered freight rates, the more distance you put between yourself and your next load, the worse off you’ll be.
Keep your truck moving. If you reject everything coming your way because you think you might get a better load offer, you’ll run yourself out of business.
Be Mindful of Headhaul and Backhaul Markets
As an independent contractor or owner-operator, you need to be especially mindful of headhaul and backhaul markets. Markets that, for the last year, had abundant loads, might be dead now.
Keep a close watch on seasonality and how it impacts headhaul and backhaul markets. Don’t accept loads in a backhaul market unless you have a way to get yourself out.
Plan Out Your Loads
Looking at your schedule load by load isn’t a great way to keep you profitable. You won’t see the bigger picture. Instead, look at your week on a whole.
Taking a $500 load may not feel great, but if it gets you to two loads paying $1,500 apiece that you otherwise wouldn't have been in the market to haul, it’ll be worth it. You might just have to take lower-paying loads to get to better markets and better rates.
Schedule out a load or two ahead of time so you always know where you’re going next. Prior to 2021, it was easy to book freight all week long. Now it’s more difficult to find loads Thursday through the weekend. Try to schedule yourself weekend loads or prepare to be sitting for a few days without freight.
Think Twice Before You Switch Carriers
If you’re not making the money you want to be making, one of the first things drivers do is blame their company. Then they switch to a new trucking company.
In some cases, the company certainly may be at fault. But with freight rates sitting where they are right now, you can switch companies all you want and still struggle with the same problems. You need to change how you’re running to be successful in the current market.
If you are going to switch companies, choose stable trucking companies with a large customer base. If they have a large customer base, you can rely on contract rates which, as I’ve mentioned before, are much stabler.
Improve your Customer Service
When the market is down like this, one of the best things you can do for yourself is to up your game and improve your customer service. When the spot market is through the roof, service suffers. Companies are desperate to get their freight hauled, so they’ll put up with a lot more.
In a down market, drivers can’t get away with the same behavior. If you show up late, you might not be offloaded. If you don’t pick up on time, you might not get load offers because you aren’t reliable. Dozens of other drivers can be counted on to move the freight.
I’ve seen this happen on dedicated lanes. Contract rates may be steady, but customers will cut the number of trucks on that route to account for the reduction in freight. Generally, the drivers cut from the route are the ones with poor safety scores and a low level of service.
Be Mindful of Your Home Time
In an awesome market, as a lease driver, you can take two weeks off and get caught up on truck payments and expenses in the first load or two. If you take that much time off now, it can take weeks to catch back up.
In this market, if you want to continue to make what you made in 2021, you’ll have to sacrifice home time frequency and duration. That doesn’t mean you can’t ever go home. It just means that you need to be more mindful of how much time you take off and when. Make sure you save money for home time and take it when you can afford to take it.
Keep Moving and Boost Your Income
In just February alone, 20,000 new trucking companies joined the market. A majority of those companies are small and have under five trucks in their fleet. Nonetheless, those companies relying on the spot market likely won’t see the end of 2022.
Don’t join their ranks. Use the tips above to change the way you run your business so you don’t run yourself out of business.
One of the best ways you can stay profitable in a down market is by increasing the number of miles you run each week. The following articles will help you move more freight and maximize your Hours of Service.
