Shippers are Looking for Long-Term Contracts Again

First, rising fuel prices were going to plunge the logistics sector into an abyss. Then came the dual threat of Yellow’s pending bankruptcy and a potential strike of 300,000-plus Teamsters members at UPS. Imports started falling off the cliff. Interest rates reached levels not seen in years, and a recession was about to happen any day.

The implication: It was going to be a rough year for transportation, logistics, and anyone who needed to move freight in 2023. But something happened along the way. With the exception of the Teamsters strike that never happened, the other big disruptions in 2023 dented but did not break the transportation sector, and now the industry may be coming through the other side.

Bryce Williford, senior vice president of 3PL solutions for BlueGrace Logistics, told Supply Chain Management Review that he sees a “very stable market” at the moment. Yes, there are pockets of concern, and not ever carrier, shipper and 3PL have made it through unscathed, but Williford sees some positives shining through.

Order levels have picked up in consecutive months after collapsing earlier in the year, and while fuel prices are up about 22% from their low earlier this year, they have not triggered a mass exodus in the trucking sector.

Plenty of capacity

“There’s still plenty of capacity,” Williford said, noting that smaller carriers have struggled, but many have simply signed on to larger carriers that have maintained their contracts and need drivers.

Williford also cited the DAT Load-to-Truck ratio which shows a “very tight” delta between refrigerated freight and truckload freight at this point, indicating that there has been no mass exodus of carriers shifting commodities. As a result, “route guides have performed well,” Williford said.

“A lot of people are saying the market could rebound in Q2 next year, and produce season could be a trigger,” he said.

Longer contracts

The stability in the market is leading many shippers to lengthen their bid cycles, Williford said. Over the past several years, those contracts had shortened to mere months in some cases as a way to hedge against the volatility. That is shifting again, although there is a change this time in the cycle

The new contracts are “not necessarily at lower rates, but at stable rates,” Williford said, noting that shippers are working to leverage relationships with carriers they trust.

There has been no uptick in spot rates heading into Q4, Williford said, but rates are no longer deteriorating, either.

“Right now for us in the 3PL space and the shippers we talk to, it’s about consolidating the gains we’ve made,” he noted.

Areas of concern

Despite the current market conditions remaining stable, there are areas of concern. Disruptions – from weather and geopolitical events for example – remain a concern. Fraud is an increasing issue, Williford said, noting that BlueGrace continues to work hard with clients to put into place efforts to mitigate the risk.

Fuel increases are always a concern, and import volumes continue to perplex many. Williford noted that with nearshoring and more manufacturers diversifying their supply chains, the standard thinking around China-to-U.S. import volumes may need to change.

“I think the volume of container traffic between China and Mexico is something we need to start looking at,” he said.

He also cited the changes that started during COVID-19 that accelerated nearshoring efforts and have led to a boom in manufacturing in North America.

“A lot of change started because of COVID and now a lot of those projects are starting to come to fruition,” Williford said.

Auto strike worries

One big area of concern is the current labor dispute between the UAW and the Big Three automakers. If that lingers, it could impact the rate and capacity environments with many carriers dependent on automotive freight facing empty trucks, Williford said, but there is a level of uncertainty here as well. He noted that the timing of the strike may allow truck drivers that may be impacted to find seasonal jobs with Amazon, FedEx and UPS, for instance, all of which will be ramping up hiring for the holiday season. Because of that, the impact downstream could be muted.

Williford said that BlueGrace continues to engage its customer base, but many of those conversations have shifted from concerns about the market to risk mitigation and change management conversations with a focus on how businesses can derisk their supply chains ahead of the next disruption.