Trucking Markets: The Bid-Ask Spread Widens

The transportation industry is bifurcated by opposing views of spot rates' direction during the second half of 2020. Shippers have started asking carriers for longer contract periods, looking to lock in very low rates. They're putting pressure on carriers by tendering spot loads at prices well below agreed-upon contract rates. In turn, tender rejections crept up to 5% during the month of May, but have now stalled.

On the other hand, carriers by and large expect a ‘rate parade' in the fall, driven by an economic recovery that suddenly exposes just how much trucking capacity has been taken out of the market since spot rates collapsed in Q1 2019. For now, at least, they're refusing to go along with shippers and sign multi-year contracts, holding out for an inflection point in the market.

Meanwhile, there's a potential tropical storm gaining strength in the Gulf of Mexico, the third system in what should be an active 2020 Atlantic hurricane season.

If shippers insist on taking price and extending contract lengths, they could set their routing guides up for an expensive and stressful failure later this year. But intransigent trucking carriers could find themselves isolated and without the contract volumes, they need to balance their networks if they get out of step with the rest of the market. 

The widening bid-ask spread may eventually cause pain for freight brokers and compress margins if shippers, and then carriers, get their way.