Why sitting and waiting is a risky approach when spot market rates are low

After two years of abnormally high trucking spot market rates, the market is cooling down. This decline will have the biggest impact on small trucking companies who do not work off long-term contractual agreements. And, to add to an already tough situation, it has become even more expensive to run a trucking business, as operating costs from fuel to insurance premiums continue to rise.

With all of these factors at play, it may be tempting to sit and wait for higher RPMs. But it’s important to keep moving to avoid putting your business at risk. Keep reading to learn why sitting idle is a high-risk strategy and our top tips for navigating declining trucking spot market rates.

Why are trucking spot market rates declining?

Freight prices are impacted by supply and demand. Typically, spot market rates are cyclical and fluctuate based on the amount of freight that needs to move. This has not happened in recent years due to the impact of the pandemic on the supply chain. So, many new truckers entered the industry to take advantage of booming spot market rates.

However, retail sales fell by 1.2% in February. This change is likely caused by many Americans returning to in-person experiences instead of shopping online, in addition to cutbacks on spending as a result of inflation.

In short, there’s currently less freight to move coupled with more truckers on the road, which leaves independent truckers fighting for available loads.

Why waiting for better spot market rates is risky

When running a trucking business, it’s important to remember that income is not the same thing as take-home profit. It’s more expensive than ever to move your trucks, so it’s reasonable to avoid taking a load when the money you’re earning doesn’t quite cover the cost to travel. But, unfortunately, you must strike the right balance between being selective with the loads you accept and ensuring that you keep running.

When running a trucking business, it’s important to remember that income is not the same thing as take-home profit. It’s more expensive than ever to move your trucks, so it’s reasonable to avoid taking a load when the money you’re earning doesn’t quite cover the cost to travel. But, unfortunately, you must strike the right balance between being selective with the loads you accept and ensuring that you keep running.

1. You’re still spending money every day you sit idle

There are many different expenses that go into running a trucking business, from more obvious costs, like driver pay and fuel, to costs that are more difficult to calculate, such as wear and tear on truck tires. Expenses can be broken down into two categories: fixed expenses and variable expenses. Fixed expenses are expenses that stay the same every month, no matter how many loads you take. Variable expenses are expenses that are dependent on how often you run and are a bit trickier to anticipate.

Keep in mind that even if your trucks are sitting in a parking lot, you are still responsible for your fixed expenses. These expenses can add up quickly, so it’s a good idea to understand your costs so that you know exactly how much you must bring in every month to turn a profit.

2. Every day that you wait is a day with no income

When you sit idle for a period of time, you’ll end up putting more pressure on yourself to work harder during the rest of the month. It might feel like a few days here and there as you wait for the market to improve, but missed time adds up fast. Earning a little bit of money throughout the month to help cover your bills is better than nothing and will help you avoid playing a high-stakes game of catch-up.

3. Rates are never guaranteed

The good news is that changes in trucking spot market rates are to be expected. Rates typically increase during the produce season in the spring. However, you can’t count on future rates to resolve any income deficit you might be creating right now. There is also always a risk that you’ll wait for rates to pick up only to find that they’ve stayed the same or even gotten worse.

How to navigate low trucking spot market rates

A market downturn won’t last forever. When spot market rates are low, you’ll need to plan carefully to set your business up for success. Here are our top tips to help you navigate a challenging market:

• Know your operating costs: Make sure you understand how much it costs you to run your business so you know the minimum you’ll need to earn in a month to pay your bills.
• Keep moving and think long-term: Plan a monthly strategy instead of only thinking about the RPM you’ll make on your next load. If you’re stuck in a bad market, focus on getting out of there so you’re in a better position to plan your next move.
• Consider working with a trusted partner: While adding an additional expense might not seem like the best option during times like these, the right partner can help you earn more and ultimately pay for itself. SmartHop offers technology that routes your trucks to hot markets and helps you plan a long-term strategy to earn more. Best of all, we have the lowest industry rates (we only charge a 3% fee) and we offer a one-week free trial so you can decide if we’re the right solution for your needs.