Following up on our earlier segment on data, we recently had an opportunity to participate in a truckload RFP, and as a result, attempted to not only make sense of the current market, but more importantly, predict the future market. As we look at the volatility in the market with states mitigating the impact of the pandemic, we see a great deal of uncertainty. The uncertainty isn’t so much on finding capacity, but the rate you pay to secure the capacity. Due to our RFP services extending not just internally to our truckload brokerage and agency operations, but also externally as one of our many coaching services for shippers and logistic service providers alike, we gain a broad view of the market and potential trends.
Lane volatility is a characteristic of the world in which we now live and work. To measure volatility, we look at various timeframes such as a seven-day, sixty-day and year average to identify irregularity with the premise to predict next year’s market. Couple this with year-over-year analysis and we can certainly form the seasonal impacts some lanes may see. Add in a 13-month snapshot, and the slope of the rate for each lane becomes apparent and more predictable. However, the pandemic upends our logic quickly due to the unpredictable nature of the infection rate and what each state may do to slow the spread of the virus. Let’s look at what we are seeing. The table below illustrates a snapshot in time taken toward the end of June related to inbound shipments to Central Pennsylvania.
As we can see by the table above, each lane has cost characteristics that support defining and potentially predicting the average rate for the following year. Notable callouts within the table focus on the volatility of the lane. For instance, the lanes outside of Akron and Omaha have a 7-day average higher than the year average. Other callouts lie in the length of haul. Both LAX and Phoenix present challenges in predicting next year’s rates with both lanes illustrating a 10% or greater variance between the 7-day average and the year average. Factoring the ports of LAX and Long Beach ramping up import activity along with produce season in AZ and capacity tightens quickly.
A key factor in predicting what the next year holds is the consideration of the snapshot in time. As the above table illustrates, the end of 2Q impacted average rates within the 7- and 60-day averages. Add in seasonal and predictable impacts such as produce, holidays, CVSA Safe Driver Week, month and quarter ends, and you have, in a large part, predictable volatility. The challenge today is the pandemic. The uncertainty of state restrictions due to the pandemic throws predictability out the window.
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