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Spot Rates Reach Record Highs Due to Stay-at-Home Orders and Peak Season Shipping
The logistics and transportation industry continues to be put to the test. Shippers, brokers, and carriers have become more willing to reassess their strategies and adopt new technologies in an effort to adjust to the new normal.
Much to everyone’s surprise, the United States GDP and consumer spending have begun to rebound much quicker than economists predicted. The Bureau of Economic Analysis highlighted the “real gross domestic product (GDP) increased at an annual rate of 33.1 percent in the third quarter of 2020, as efforts continued to reopen businesses and resume activities that were postponed or restricted due to COVID-19. In the second quarter of 2020, real GDP decreased 31.4 percent.”
As temperatures begin to drop, holiday gatherings in full swing, and talks of new lockdown restrictions have circulated, supply chain leaders must face peak season shipping in addition to existing demand volatility and fluctuating rates. “Both truckload tenders and tender rejections rose” during the weeks leading up to Thanksgiving noted by FreightWaves as “drivers will be seeking freight that drives them toward home, which could push rejections and spot rates higher.”
While manufacturers typically secure carrier partners for their dedicated lanes with contracted rates, they will look to the spot market to address critical needs and transport time-sensitive shipments. An imbalance between the number of contract rates and spot rates has always existed, with spot freight making “about 15 to 20 percent of total volume.” However, Food Logistics mentions how the spot rate market has reached record-breaking levels. “The average spot line-haul rate for vans set a record for the third straight month as the highest monthly national average ever, which exceeded the national monthly average contract rate for the third month in a row.”
The limited supply of trucks and increased demand for capacity fueled by ecommerce, holiday shopping, and stay-at-home orders are the main drivers for the recent expansion of the spot market. A survey Inbound Logistics reported on validates this growing trend and found that 64% of logistics professionals will “plan to make more use of the spot market to better manage surge capacity and secure more favorable rates.”
Meanwhile, retailers with global supply chains are racing to get their products into the hands of their consumers to compensate for lost profits. Economists are expecting this backlog of inventory to swell through 2020 and settle down in early 2021. “I do expect it to be a good peak season, and I think the restocking effort will go into 2021,”said American Trucking Associations Chief Economist Bob Costello, “But I do expect freight to level off.”
Despite heightened pressure on capacity and supply chains as a whole, the mentioned survey also illustrates optimism in the unfolding digital transformation.
- 76% say the crisis has increased their demand for real-time visibility.
- 25% will use more digital logistics offerings in the future, indicating that the need for greater visibility, reactivity, and flexibility is accelerating digitization.
- 80% will continue to integrate new technology into their supply chains in the future, and plan to use a mix of off-the-shelf and in-house solutions.
ZUUM Transportation provides the very tools needed to mitigate the effects caused by unexpected events and volatile market conditions for all freight participants. Learn how ZUUM’s technology is accelerating the digital transformation during a global pandemic here.