Implications of Rates Based on Lower Volumes and a Shift in the Market

It's no secret that the logistics and supply chain industry is experiencing complications since the Covid-19 pandemic. These complications can increase the competitive atmosphere amongst different supply chain roles such as brokers and carriers. According to Bill Robinson, Director of Carrier Relations at Wellington Group of Companies, “Both parties are misplacing blame on their industry counterparts. The freight market is driven by supply and demand, the same as any other industry. If your product or service is in demand, the rate for your product or service will go up. I won’t patronize basic economics, so why do some people in our industry seem to not believe supply and demand are driving the market rates? Why have they stuck on us versus them mentality?”??

We spoke with experts in our company, and this is what they had to say:?

Juan Manuel Rodriguez, Hubmaster here at Hubtek states, “I've seen some conversations where carriers feel that brokers are price gouging and vice versa. I don't think this is the case.”?

To understand this a bit better, we'll have to go back to Economics 101, supply and demand. The market can either be loose, tight, or balanced.? A tight market means high demand, there are more shipments than trucks available and prices tend to be higher than average.? In soft or loose markets, when there are fewer shipments than trucks, prices tend to be lower.?

“The first quarter continues to offer easily available capacity and very low pricing. Today’s market is trending below the five-year average, which is one indicator that suggests the market is oversupplied. By using tools such as DAT, Truckstop, and other freight analytics pages, we can determine where the market stands. After doing so, we can create strategic opportunities and plans and make the most of the current, and next, market cycle.”?

Matthew Smith, Account Executive at Hubtek, stated that the freight industry is just like any other industry, in that the market and the rates are based on supply and demand.? “When demand is high, capacity is low, and we see an increase in rates.? On the flip side, when demand is low, we will see a shift in the market, and rates will drop. Asset carriers feel that brokers take advantage of them when the market is in their favor by driving the rates down, and brokerages feel that asset carriers are price gouging when the market is in their favor.”?

“The truth is that both sides are crucial to help navigate this volatile industry, and both sides should prioritize working together to create long-term, sustainable partnerships rather than taking advantage of the current marketing conditions to benefit themselves in the short-term.”?

Finally, we heard from Juan Vanegas, Sales Team Leader at Hubtek.? He also affirms that the freight market is driven by supply and demand, the same as any other industry. “There are people that believe that there are other implications for the shift in the market. For example, carriers believe brokers are price gouging and taking as much as 50% of the shipping value in the current market. They're complaining that brokers are influencing this market in their favor and that the result is that carriers are not getting paid a fair rate per mile. On the other hand, brokers are commenting that carriers themselves gouged brokers during the pandemic and that they drove rates higher from day to day on the same lanes for their own gain.”???

“In all these stages, if the capacity had been available, the rates would not have increased to the extent that they did. The markets are the root cause of both the favors or misfortune of brokers and carriers. However, I don't want to disregard the fact that some companies are valuing making a quick dollar over a long-term sustainable partnership, and these people are fueling the carrier versus brokerage fire.”?