In the second half of 2020, carriers gained more leverage in negotiating spot rates. In fact, spot loads increased by over 69% YoY, indicating an extremely high demand heading into the new year, but there are a number of factors at play.
Restocking on Steroids
Toward the end of every year, businesses go through a restocking phase to replenish inventory from seasonal sales. In 2020, businesses reached that point in October, much earlier than previous years. Because of this, shippers have been relying heavily on spot loads, giving carriers a big advantage in negotiating rates. Expect this trend to continue as more people shop online and businesses try to keep products in stock. Many fleets are already preparing to meet the trends in e-commerce head on by purchasing commercial vans to not only handle volume, but to also offer last-mile delivery to diversify adn increase revenue in the fourth quarter. This also means doubling down on recruitment efforts to add drivers for the seasonal rush.
Carriers Are Experiencing Internal Pressures
Analysts debated whether the truck driver shortage was real prior to 2020. One group would point to the numbers and the high demand and state very clearly that a shortage existed. Another group would claim that demand always exceeded the number of drivers on the road, and for carriers to expand their workforce to accommodate the demand would cause rates to plummet. However, since FMCSA rolled out their Drug and Alcohol Clearinghouse, the driver shortage has become very real with tangible effects. The Drug and Alcohol Clearinghouse flagged roughly 46,000 violations over the past year, which has led to a quantifiable decrease in the trucking workforce. The net result is that there are fewer trucks available for spot shipments and rising demand. Additionally, legislation similar to California’s AB5 are popping up in various states, and even at the federal level. This could place owner-operators under full-time employment with large carriers, thereby potentially costing the industry much more money than in previous years, while decreasing revenue for independent drivers.
Abnormal Cash Flow
Just because demand is high and carriers can have more leverage with rates doesn’t mean cash flow is steady, especially now. Carriers are still waiting 30, 60, and even 90 days to receive payments from jobs completed months ago. A lag in payments can lead to gaps in revenue, and carriers need faster access to working capital to maintain fleets, pay drivers, and make plans for expansion. The lag can also prevent trucking companies from recruiting the drivers they need to meet the upcoming demand in the thirs and fourth quarters. To achieve a closer parity between receivables and revenue, carriers use freight factoring services from Single Point Capital. Carriers that use our freight factoring services can turn their unpaid receivables into cash within a single day, plus they get access to account management tools, account insurance, and no long-term contracts. To get a better footing in the high-demand spot rate market, contact the team at Single Point Capital today.