Inflation Causing Spot Market Shrinkage

Inflation is the principal decrease in purchasing value of money amid changes in certain economic circumstances such as rising labor costs, energy prices, and interest rates. Rising costs and declining worth of currency affect everyone and everything. Not only does inflation affect the individual, but it also has a lasting grip on companies- or even industries as a whole. This is most certainly the case in the freight industry, as it operates in accordance with shifts in supply & demand, interest rates, and inventories. Dealing with inflation as a company means being as deliberate and financially calculated as possible, even if that results in cutting workers, slowing business, and in the worst case, bankruptcy. This notion is currently being observed in the trucking market, as smaller carriers who have benefitted from the spot market since the beginning of the pandemic are no longer able to break even on shipments. Diesel costs and the plummeting spot market rates make it very hard for smaller fleets to profit, let alone break even. This entails that while capacity is high right now, spot market rates will remain at near-record lows. When it costs carriers money to ship freight and leaves no money to profit, these fleets get out of the industry, as we are witnessing this turn already. With this influx of capacity, shippers hold the power to pick and choose carriers, as spot rates for freight are low which drives up competition between carriers for a given shipment. However, every action has a reaction. The freight industry is susceptible to market shifts, and this is no different than what we are seeing today. With the spot market rates being exceptionally high at the start of 2020, thousands of drivers bought trucks to take advantage of the high rates for shipments. The result 2 years later is lower spot market rates and high expenses are causing some to leave the industry entirely. Net revocations for trucking authority have seen a steady increase throughout 2022, and reached a record high of 9300 in May, with previous records being set in directly previous months. According to Vice President of FTR Avery Vise, while the spot market usually takes roughly 15% of the overall trucking market, that share may have climbed to 50%. The current portion of spot market use lies somewhere in between and is estimated by Freightwaves to be roughly 33%. With a third of current shipments being through the spot market, decreasing spot rates therein, and carriers who operate in the spot market leaving the industry in record numbers, there is soon to be a correction in the dynamic between shippers and carriers. With all that being said, maybe it's time to check your current carrier rates and see if you're overpaying. Schedule a rate check with Red Dog today!