Freight broker sentiment shaky heading into the back half of 2022

Our sentiment survey of 166 freight brokers on their outlook for the third quarter of 2022 shows they are pessimistic about acquiring and retaining customers. This is normal when value shifts away from finding capacity on a regular basis. With outbound tender rejections dropping from over 20% to begin 2022 to 6% in August, finding a truck hasn’t been as easy since early 2020 when the freight market was in its last recession.

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Landing new shippers and retaining existing ones are top of mind for all freight brokers now — and not in a good way. The loosening of capacity in the spot market means price competition is fierce. Any contract rates that haven’t been negotiated to match the falling spot market with shippers by now will be soon. 

Like all fears, the misery resides in the anticipation of what’s about to happen. The exhilaration of hearing your phone ring off the hook when you post a load will be replaced with the bleak margins you eke out as contract rates continue to fall.

Gross margins are always a worry. It has been a tailwind for freight brokers who have contract rates in place. According to FreightWaves’ National Truckload Index (NTI), the national average for dry van spot rates, excluding fuel, have sunk 29% since their highs in February. 

Not so for contract rates, though, as we are only now seeing slippage from the recently negotiated higher rates. Contract rates are only down 3% over the past six months. 

For freight brokers moving contract freight, gross margins have been widening with only a slight dip in load volumes.

FreightWaves SONAR: NTI.USA (White, spot rates including fuel), NTIL.USA (Blue, spot rates excluding fuel) — FreightWaves’ National Truckload Index of spot rates fell off a cliff in mid-February. 

Expect the contract market to move further down from here, though, over the coming months. The spread between spot and contract rates is just too wide to continue much longer. The spread is wider now than it was during April 2020 at the height of the COVID-19 lockdowns.  

 FreightWaves SONAR: VCRPM1.USA (White, dry van contract rates), NTIL.USA (Green, dry van spot rates) — The spread between spot and contract rates is as wide as it ever has been. Spot rates have reached a low of 98 cents below contract rates and are now still at record levels of 83 cents.  

All of this to say there are fewer loads in the spot market now than a year ago — a lot fewer to be more exact. Sub-6% outbound tender rejections tell us carriers are not rejecting contract freight as contract rates are paying better than the spot market. 

Fewer loads are hitting the spot market, which creates an oversupply of truck capacity. What we’ve witnessed in 2022 is a spot market that has gone from a gold mine to a shaft in the blink of an eye. 

Fears of a slowdown in load volumes is the focus of freight brokers’ concerns for the second half of 2022. The mix shift of consumer spending away from goods and back to services means a decrease in load volumes across the board. Retailers and consumer product companies are battling bloated inventory levels, leading  to reductions in future orders. A good rule of thumb is that the deeper a company is in the discretionary spending category, the more bloated its inventory levels are right now.

Where to go from here? 

The only certainty we can point to for the freight markets in the second half of 2022 is uncertainty will reign supreme. Inflation, inventory, consumer borrowing and spending will drive the market one way or another. It is looking more likely it will be lower rather than higher at this point in the freight market cycle, though.

So, the best course of action is to focus on your customers, find ways to add value so you can maintain your pricing power and keep developing those carrier relationships that will see you through these down cycles in the freight markets.

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Source: freightwaves - Freight broker sentiment shaky heading into the back half of 2022
Editor: Kevin Hill