Q2 played out close to what the freight market expected. Fuel surcharges climbed fast, and enforcement of driver regulations pulled more capacity out of the market than most shippers had planned for. The industry saw spot rates at record highs.
In his latest quarterly market update, Jason Smith, CEO of Shaker Logistics, breaks down what drove those shifts and what shippers should watch for as Q3 unfolds.
Fuel Costs Are Still Climbing
Fuel was the unexpected variable that changed Q2 for shippers, carriers, and consumers. Prices at the pump shot up when the conflict in Iran halted oil shipments in the Strait of Hormuz, and fuel surcharges spiked across the industry. Shaker’s own fuel surcharge jumped from $0.50 a mile to a peak of $0.91 a mile in the span of a month during Q2, and with continuing conflicts in the Middle East, diesel prices show no sign of easing off.
That fuel surcharge increase adds up to roughly a 10% jump in overall transportation costs from fuel alone. Shippers building freight budgets or renegotiating contracts for the second half of the year should factor that pressure in now, instead of getting caught off guard by it later.
Carrier operating costs rise with fuel, and smaller carriers and owner operators that don’t use fuel surcharge schedules will feel the pressure on their budgets. If this spike in diesel costs continues, these carriers might start parking trucks to avoid going into debt. If your rates aren’t moving with fuel, it’s a sign that your carriers are absorbing that cost – but they can’t do it forever. Have conversations with your providers about how they’re weathering fuel costs, and make room in your budget for those elevated prices at the pump.
Non-Domiciled Driver Enforcement Reshaped Capacity
In Q2, The FMCSA’s enforcement push against non-domiciled CDL holders, chameleon carriers, and fraudulent carriers drove capacity off the road. Whether it was from fear or actual violations, carriers and drivers were dropping out of the freight market at a faster rate than anyone could have forecasted. This caused rates to skyrocket to Covid-era levels.
Around week 13 of Q2, spot rate volume and the market demand index both spiked, and that tightness has carried into Q3. Less capacity chasing the same freight volume tends to push rates up, particularly for shippers without a backup plan when their primary carrier can’t cover a load.
Q3 So Far, and What’s Next
Q3 is looking like the quarter that shippers might not have been prepared for, but the serious market crunch hasn’t started just yet. July and August typically run a little muted for freight volume, and this year should follow that pattern. Summer vacations and plant shutdowns tend to soften demand through roughly the midpoint of the quarter.
Expect tightness to build again heading into the back half of Q3. Industrial production and shipping volume are both trending upward, and that usually feeds into more manufacturing freight. Layer rising demand on top of an already thin supply of trucks and capacity, and rates can spike quickly.
When that happens, shippers trying to use stale rates will usually see more rejections and potentially lose all coverage on a load or lane. The best thing you can do in a turning market is listen to your carriers and 3PL partners: if they say they can’t cover a lane with an old rate, they mean it. When carriers have the advantage, rates have to be healthy and competitive if shippers hope to get a truck at their dock when they need it. Shippers who don’t move with the market will find themselves behind the curve, missing deadlines, and paying exorbitant rates for last-minute coverage.
Three Ways to Get Ahead of a Tightening Market
Shippers who come out of a tight quarter in good shape tend to do a few things consistently well:
- Partner with a strong asset-based 3PL. A 3PL with its own equipment and an established carrier base has direct access to capacity that a broker relying on spot boards doesn’t. 3PLs like Shaker can leverage carrier relationships that last through market swings, giving shippers access to reliable capacity across the board.
- Give as much lead time as possible. More notice lets a 3PL source capacity on better pricing and better service instead of scrambling at the last minute. Just-in-time moves tend to be costlier as well, and a few last-minute shipments in a row could blow your budget for the month, so the farther ahead you can work, the better.
- Become a shipper of choice. This term disappeared during the pandemic-era carrier market boom, but now that the market is flipping, carriers can be more choosy about who they partner with. They’re less likely to want to work with shippers that make them wait for hours at the dock or don’t have driver amenities. If you’re not sure where you stand in a carrier’s perspective, check your business’ Google reviews. Drivers post public reviews of shipper locations, and carriers pay attention to them. A driver-friendly facility with clean restrooms, a comfortable waiting area, and available on-site parking, paired with flexibility on pickup and delivery windows, makes shippers stand out as desirable clients.
While carriers are catching their breath after Q2’s demand spike, now is a good time to lock in fair pricing for the rest of the quarter. Waiting until Q3 tightens further usually means losing that opportunity, and getting trapped with rates you didn’t plan for.
Shaker’s team works through exactly this kind of market shift with shippers every quarter, matching capacity to freight before a lane turns into a problem. Reach out to our team today to talk about how you can stay on top this quarter.