In 2007 Nassim Nicholas Taleb popularized the term, Black Swan Event, which is defined as an event that
The COVID-19 pandemic is, unfortunately, a Black Swan Event, effecting the freight economy in ways that could not have been forecasted. A quick look at the OTVI (Outbound Tender Volume Index), which measures tendered contracted outbound volume, highlights the sudden swing in volume over 45 days between March and April. Load volumes have decreased at twice the speed they rose last month.
This is significant because historically contracted load volume is more predictable and less volatile than the Spot Market. The sudden reduction in load volume is understandable considering many segments of the economy stopped instantly when shelter-in-place orders were issued across the United States.
The economic downturn has unfortunately resulted in many carriers filing for bankruptcy or reducing their workforce which has directly impacted trucking capacity. This directly impacts trucking capacity which currently sits at about 84%.
At this time, Q2 of 2020, capacity has dropped to 84% which is lower than during the downturn of 2009. It is predicted though, that as the economy opens back up capacity will tighten and rise sharply to an unprecedented level of over 100% in Q1 of 2021.
For shippers, the market is currently in your favor. The question is, what do you do with this advantage? They could continue to leverage the spot market and save in the short term but there is a saying in freight, “the spot market giveth and the spot market taketh away.” Our recommendation for our current and prospective clients is to lock in contracted rates now and set themselves up for forecastable cost savings now and in the future. All projections point to a market snapback, and when that happens, savings earned through spot market bookings will be lost. By contracting now, you have a chance to lock-in competitive rates for 12 – 18 months, not just 3 months.
We understand all businesses are facing unique challenges, this strategy will prepare our clients for increased market strength on the other side of this Black Swan Event.
At Dynamic Logistix we provide CERTAINTY in a time of uncertainty. Our Tier 1 TMS program includes a leading Cloud-Based TMS that streamlines freight logistics from order entry, load building, route optimization, and carrier selection. We offer our clients 24/7 visibility, ERP integration, freight audit and pay, business intelligence reporting, and dedicated account managers Dynamic Logistix is eager to help your company save money and time. Click here to schedule a complimentary process review with our logistics team.