Shipping Contract Rates to Stabilize in 2023

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Shippers remain in control of contract rates, however, industry analysts say rates will likely stabilize throughout 2023.

Tim Denoyer, vice president, and senior analyst for ACT Research says pricing authority shifted to shippers throughout 2022 but there was a slow decline in December, which may be a sign of the lowest starting point; “Recession is a reasonable expectation given monetary conditions, but in the truckload market, we believe the bottoming process is picking up speed, and the loose market current conditions should rebalance over the course of 2023.”

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“Shippers have substantially more market power now than they did a year ago, and carriers are more interested in locking in volumes. This means contract rates are going to be going down for at least six months, if not longer,” said Noel Perry, principal at Transport Futures. “This is going to be a lousy year for contract rates, and more so for the contract than spot because spot rates have already reacted.”

New contract rates negotiated by carriers are down 12-16% as carriers are rebidding contracts to hold onto capacity as several large fleets are now on a 100% contract basis. “The freight they take is committed freight. it is committed by the shipper, and the capacity provided by the carrier is committed. If you are 100% dedicated, there is no cyclicality in volumes and capacity, so rates don’t change,” – Perry said. “That is a damper among other dampers on contract rates compared to spot rates.”

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Few shippers are “channel shifting” and moving to the spot market in order to take advantage of slimmer rates, but further contract negotiations are expected among carriers and shippers with long-term relationships. Contract rates are set to drop 3-5% in 2023 but could dip 5-8% if there is a recession.