Even CPG volumes are slowing for brokers

An unusually broad-based downturn in goods flows that has affected even the most resilient of customer segments — consumer packaged goods and food and beverage — has freight brokers scrambling to differentiate themselves and compete for less available freight.

Tyson Foods’ stock plunged by more than 16% after it announced that it lost money in the first quarter of 2023, couldn’t manage to grow beef and pork volumes even after cutting prices and lowered its estimates for revenue growth to “flat to 1%” for the year.

According to one broker who spoke to FreightWaves, a large food conglomerate is moving 8-10% fewer loads just by consolidating smaller shipments into full truckloads; a decrease in vendor order flow was responsible for a further 5-7% reduction in volume. 

Another freight broker said that many of the shippers who led the charge to push contract rates down in 2022 are now slowing the pace of their RFPs and looking to lock in their savings long term.

“I look at the bid cycle like an accordion,” said Pat Gillihan, chief revenue officer at Transportation One, a Chicago-based freight brokerage. “It completely contracted from annuals to semiannuals to quarterlies in order to capture the market movements on the upswing and now on the downswing. Now that accordion is being tremendously extended: Quarterlies are now semis, semis are now annuals. It suggests that the shippers have realized they’ve captured the bottom of the market and are looking to extend those low rates.”

Typically, spot rates stay within about 25 cents per mile of the prevailing contract rate. If spot rates exceed the contract rate by much more than that, shippers start to feel the bite of tender rejections and raise their rates to ensure compliance. Historically, if spot rates dropped below contract rates by much more than 25 cents per mile, shippers would save money by moving their freight on the cheaper spot market until they contracted carriers lowered rates.

Today, spot rates are an incredible 72 cents per mile below contract rates, when including a fuel surcharge of $1.20 per mile. That means that shippers should be able to extract further concessions from their contracted carriers if they so choose. Some shippers are still frequently rebidding their freight down, but others have moved on to other priorities, including service.

Gillihan said that shippers are enforcing the highest service standards they can — and dinging their carriers and suppliers with fines more frequently when shipments don’t go exactly according to plan.

“If you’re not executing at a 98.5% service level or above, you’re being ousted from the network,” Gillihan said. “It’s not even a topic of conversation, just an expectation. The application of fees has also increased. We see more $250 chargebacks and $500 fees [for late or incomplete shipments]; things that big box retailers would have let slide previously are now triggering fees.”

Demand softness has started working its way up the supply chain from the retailers to their food and beverage vendors to the companies that make packaging like cardboard boxes. Packaging Corp. of America, the third-largest containerboard/box producer in North America, which experienced a 13% year-over-year decline in box shipments in the first quarter, announced Tuesday that it was idling its containerboard plant in Wallula, Washington, indefinitely, and laid off hundreds of employees. 

To the extent that CPG and food and beverage shippers are looking for new transportation providers, they’re focused on asset-based trucking carriers, not necessarily third-party logistics providers. That’s changed the way some freight brokers sell their services.

Gillihan said that at Transportation One, he goes to market with a “strategic capacity-based sales model.” He works closely with the best small and midsized trucking carriers that he can find and tries to plug the holes in their networks where they need freight. That strategy lowers Transportation One’s cost to serve its customers and makes its capacity stickier in those lanes. 

Gillihan said leading with the best carriers helped Transportation One hit 24.7% year-over-year volume growth in the first quarter of 2023, numbers that many larger 3PLs would struggle to put up in this market.

Echo Global Logistics, a Chicago-based 3PL with $4.4 billion in 2022 gross revenue, has leaned even further into assets in a bid to differentiate itself. Echo, now a private company since its acquisition by The Jordan Co. in November 2021, is in the process of rethinking itself as a supply chain solutions provider. That includes purchasing real assets.

In May 2022, Echo bought Roadtex Transportation, which operates a nationwide network of 32 cold chain warehousing facilities and a dedicated less-than-truckload fleet. Roadtex’s main hubs are in New Jersey, Indianapolis and Chino and Sacramento, California. Roadtex’s Indianapolis presence includes more than 1 million square feet of temperature-controlled warehousing. That allows Echo to get in even deeper with midsized food and beverage and pharmaceutical shippers.

In January of this year, Echo hired Frank Hurst, a longtime LTL veteran, from Roadrunner to run LTL and now temperature-controlled logistics at Echo. Hurst’s vision is for Echo to integrate its services and become a single-source solution provider for temperature-controlled logistics.

“When talking to customers, COVID is in the rearview mirror for them, [in terms of] the supply chain disruptions and service impacts,” Hurst said. “Their expectation is that their service providers get back to providing the highest level of service, and we talk about this with our LTL carriers, focusing on on-time service and quality. Our customers don’t want the excuses of driver shortages and supply chain disruptions — they want fluidity and on-time delivery.”

Less-than-truckload rates have come down some as customers rebid freight but LTL pricing is “more rational” than truckload pricing, Hurst said, explaining that LTL carriers are tied to physical real estate like cross-dock facilities and the workers in them, which also constrains where their fleets can build density. That means that LTL rate increases can be more tied to macroeconomic inflation than the boom-and-bust cycles of a volatile market like truckload freight.

Hurst said that Echo’s ability to provide critical aspects of the storage and distribution of temperature-controlled freight helps its CPG customers meet the demands of big box retailers.

“That linkage is critical,” Hurst said. “Retailers are the distribution channel for CPG and food and bev, and shipping into mass merchants requires a heightened level of service, planning, details and flexibility. That’s why shippers that have temperature-controlled needs partner with a Roadtex or Echo — understanding those requirements can be daunting.”