The year 2020 was anything but ordinary, and the imbalance caused by shutdowns and business restrictions continues to affect supply chains across the world in 2021. Such ripple effects impacted consumer spending patterns and exacerbated pricing, leading to spikes in truck freight rates.
Truckload rates for dry vans, where we have traditionally seen a good balance between supply and demand, are now at historic highs and are expected to remain high in 2021. Container capacity is extremely tight at both the east and west coast ports, meaning ocean shipping rates have increased. Rail rates are also reaching record heights.
Nearly all market indicators are pointing towards a continuation of high rates and tight capacity through 2021. Here are some key market observations that are causing a perfect storm for elevated freight rates throughout the year of 2021:
· Increased shipment volume
· Tight trucking capacity
· Lack of equipment availability
· Recovery from the 2020 truckdriver shortage
· Growth in consumer goods volumes particularly in e-commerce and home delivery
Trucking capacity is expected to remain tight through 2021. Trucking industry still lacks 50,000 truck drivers with carriers struggling to bring drivers back to the market. The reasons for this are numerous, however, the slowdown in issuances of new Commercial Driver’s Licenses (CDL) due to the COVID-19pandemic, drivers retiring or exiting during the slowdown, and truck and trailer manufacturing slowing down due to shutdowns, are a few crucial ones.
New driver enrollment at driver schools is expected to improve as the COVID-19 vaccine is distributed, as will manufacturing of tractors and trailers. Compared to the previous year, there ere around 100,000 less new CDLs issued to the drivers. Additionally, more than 46,000 drivers were put out of service due to drug and alcohol violations, the driver shortage still remains a big issue in the industry.
A full recovery in truckloads is expected by Q3 2021. Truckload capacity is expected to increase more than 5% in 2021, after a 4% decline in 2020. The strongest increase is more than 6% for flatbed, but that segment also took the biggest hit in 2020. Economists are forecasting an average year-over-year growth rate of 7.8% in industrial production in the second, third and fourth quarters of 2021, with 4.5% growth in 2022. Industrial sectors could start improving as soon as the demand for gas, diesel, and jet fuel improves along with aircraft production. “Lean Inventories” will compel restocking well into2021, and truckload yields in the industrial sector are expected to increase up to 10%, with LTL yields increasing up to 5% (5).
GDP goods transport was up 85%in the third quarter of 2020, which put pressure on local delivery services, and because of this, local delivery accounted for one in three jobs added to the economy in November 2020. It was more than half for the entire trucking and warehousing sectors combined (4).
With the eventual completion of inventory restocking tailwinds, the end of goods-only consumer spending, and the recent acceleration of Class 8 truck orders, market is expected to stabilize. As theCOVID-19 vaccine distribution becomes more widespread and service and entertainment opportunities become available, we predict consumers could begin to divert their dollars away from goods and back to services by mid-year. Freight rates could begin to ease as early as the middle of the year.
Even in current market conditions, PLS Logistics Services continues to work extremely hard to bring the best rates possible and communicate market circumstances in real-time. We have a never-growing network of trusted, reliable carriers and will continue to haul freight every day at the best rates possible.