Finding an equilibrium

As the transportation industry recovers from inflated demand brought on by the COVID-19 pandemic, excess capacity has created an ideal market for recyclers looking to ship commodities domestically and abroad.

During the session From A to B: The Outlook for Transportation at the Paper & Plastics Recycling Conference in October, John Paul Hampstead, strategic analyst for freight market forecasting and analytics platform FreightWaves, noted shippers have significant pricing power in the current market. This is particularly true for recyclers relying on backhaul lanes, which ship in the reverse direction of most freight and population centers and often are cheaper than traditional lanes.

“Capacity is very loose,” he said. “The trucking industry adapted [to increased demand during the pandemic] by bringing on tons of new capacity; tons of owner-operators and small fleets, especially, added trucks to chase these rates. When demand receded, the capacity was leftover, and rates crashed.”

According to data from Chattanooga, Tennessee-based FreightWaves, spot rates peaked during the holiday season in 2021, steadily declined throughout 2022 and bottomed out this year.

Although the rate at which carriers entered the market was negative last summer, Hampstead said overall capacity in the trucking market continued to grow, creating “soft conditions … until more capacity bleeds out of the market.”

The market for ocean containers is similar, with short-term rates currently below prepandemic levels. Backhaul trans-Pacific lanes offer rates Hampstead described as “dirt cheap” for loads traveling from North America to Asia.

“What we’ve seen over the summer is that even as ocean carriers have tried to adapt to this market by switching out larger vessels for smaller vessels on their lanes, by doing blank sailings, by rejecting freight, trying to put artificial limits on the amount of capacity available, they haven’t been able to shore up prices,” he said.

This is a stark contrast from late 2021’s congested ports and inflated prices.

Anupa Pradhan, a panelist and vice president of Plano, Texas-based logistics firm Sealink International Inc., described freight markets as “a swinging pendulum,” highlighting difficulties in coordinating supply and demand.

“Throughout 2020 and 2021, … there was a lot of demand; the ports were congested; there were off-and-on closures everywhere, especially ports in China,” she said. “A functioning supply chain had become a chaotic world for us. Things started coming down again [last year], but then they went in the other direction, so there was this imbalance again.”

Changing trends

Data FreightWaves analyzed show a gradual deterioration in total U.S. exports and capacity assigned to U.S. export lanes since 2022, allowing those shipping recyclables to seek aggressive prices.

“If you find large spreads between your contract rates and your long-term rates and your short-term SPA [special price agreement] rates, you should have a conversation with your carriers,” Hampstead advised those in attendance.

Tyler Brown, business development leader for the transportation and logistics divisions of De Pere, Wisconsin-based AmeriLux, said securing contract rates has been key to keeping up with fluctuating trucking markets.

Using its network of full truckload and less-than-truckload carriers, AmeriLux aims to find a “win-win with [the] customer [where] you find a price you agree to whether the market is way up or way down,” he said.

The pandemic also affected carrier preferences among shippers, with many choosing drop trailers rather than live loads because of their flexibility.

From difficult-to-unload cargo to staffing issues at warehouses, working within truck drivers’ schedules can be a challenge, Hampstead explained. The ability to load and unload shipments without hurry led many national carriers, such as J.B. Hunt, Schneider, Werner and Ruan, to buy thousands of trailers, subsequently driving up asset prices, he added.

That trend could shift back toward a preference for long-term arrangements with carriers based on certain pricing criteria, such as turns per week, distance or time needed at each location, he said.

Future volatility

Looking ahead to next year, panelists agreed the power will remain in the hands of shippers—primarily exporters.

“Even though they were able to, in many cases, secure reductions in contract rates by 30 percent or 40 percent year over year from 2022 to 2023, what I’ve been told is that in the current RFP [request for proposal] bid season, many shippers are still asking for rates to come down,” Hampstead said.

While spot prices have waned, Brown emphasized that locking in long-term contracts can yield better rates.

“Make sure if you’re working with carriers and you do have anything consistent in your network that you’re not chasing the bottom price; a little above that and you can create a win-win scenario that is going to last because we all know that what goes down eventually will come up,” he said.

Hampstead noted that if shippers rely on the lowest rates, it can introduce risk into their networks. “If we’re truly at the bottom and we know rates will go up, it’s only a matter of time before your routing guide starts getting blown up,” he said.

While domestic transportation has carried most of U.S. demand, Pradhan said export markets remain strong.

Hampstead added that it’s a great time for shippers to promote technology adoption in their carrier networks.

“They can raise the level of expectations to do more business with them … whether that means some sort of direct data connection via API [application programming interface], whether it means visibility or other kind of service level agreements,” he explained. “If you want to make your carriers onboard into certain platforms, you may have the leverage to do that in this market.”

Future volatility isn’t completely out the window, though, and Hampstead foresees complications spawning from rapid consolidation in the industry.

“Even now, shippers are probably trying to simplify their networks, which means firing their worst carriers,” he said. “I think what they should be doing is diversifying and preparing for volatility we know is coming [but] is not here yet.”

The author is associate editor of Waste Today, a sister publication to Recycling Today. Contact her at hrischar@gie.net.