How Market Conditions Can Affect Carrier Decisions

Transportation is often seen as a “perfect market,” meaning no single party controls the entire market enough to affect or control rates. Instead, the market fluctuates based on supply and demand. If supply (trucks/equipment) is abundant and less freight is available, rates go down. If equipment or truck capacity is tight and shipment volumes are greater, prices go up. How do these constant changes in the market impact carrier-shipper relationships?

Carriers often respond to market demand in different ways, though it can be common to base decisions on the strengths of their relationships with 3PLs or shippers. Some carriers simply turn to the highest bidder for their equipment, whether or not the bidder is an existing customer. Many of these carriers often ride the predictable waves of regional freight demand driven by produce and other seasonal items, sometimes leading to a feast or famine mentality when it comes to freight.

When equipment becomes scarce, other carriers may see an opportunity to shift their equipment to transactional customers who will pay higher spot market rates. Some carriers will even display a preference to customers with higher contracted rates than shippers with larger volume and lower contracted rates. Many carriers remain loyal to their shippers during market shifts, especially if the shipper shows a willingness to adjust and renegotiate rates that more closely reflect market realities. This enables the carrier to remain profitable, and the shipper to not have to resort to the spot market and potentially pay higher rates, which is a win-win situation for both parties.

Of course, one thing all shippers need to be cautious about is how often they renegotiate rates. If shippers renegotiate too often, they’re simply playing the market; too little, and their rates will become stale and outdated, likely leaving carriers searching for new lanes and loads. But as with most things in life, a give-and-take approach, when appropriate, can foster a foundation of trust and loyalty that enables both parties to maintain their businesses in up-and-down markets. This doesn’t mean that rates should be renegotiated every time the market swings, in an attempt to scrape pennies together. If both shippers and carriers try to seize the advantage when the market swings in their favor, neither party has much stake in remaining true to its commitment in the long run.

In reality, neither the carrier nor the shipper can truly swing the market in their favor, hence the term “perfect market.” Shippers can find added stability to their freight cost by remaining loyal to those carriers that consistently move their freight and provide good service levels. Carriers are more likely to reciprocate and remain loyal to the shipper in return, bringing stability to their own networks.

To learn more about becoming a carrier with CLS, click here. If you are interested in learning more about how shippers and carriers can work together through the power of an award-winning 3PL like C.L. Services, fill out the form below to get in touch with our logistics experts.

Written by:
Tim Griffin
Director of Marketing & Media, C.L Services, Inc.

 

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