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. While some may wonder if freight rates dropping is on the horizon, the reality is quite different. This article provides a comprehensive supply chain analysis of the current situation and its implications for the transportation market.
How will freight rates change in 2021?
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 shipping rates have increased due to extremely tight container capacity at both the east and west coast ports, exacerbated by port congestion and shipping backlogs. Rail rates are also reaching record heights. Nearly all market indicators are pointing towards a continuation of high rates and tight carrier 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 and import levels
- Tight trucking capacity leading to a capacity crunch
- Lack of equipment availability
- Recovery from the 2020 truck driver shortage
- Growth in consumer goods volumes, particularly driven by e-commerce growth and home delivery
Truckload Demand in 2021: Capacity shortage will continue
Carrier capacity is expected to remain tight through 2021. The trucking industry still lacks 50,000 truck drivers, with carriers struggling to bring drivers back to the market. Many are asking why is there a truck driver shortage, and the reasons are numerous. The slowdown in issuances of new Commercial Driver’s Licenses (CDL) due to the COVID-19 pandemic, drivers retiring or exiting during the slowdown, and truck and trailer manufacturing slowing down due to shutdowns are a few crucial factors contributing to this shipping shortage.
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 were around 100,000 less new CDLs issued to the drivers, significantly impacting the truck driver growth rate. 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, highlighting the need for improved driver recruitment and retention strategies.
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 into 2021, and truck freight rates in the industrial sector are expected to increase up to 10%, with LTL yields increasing up to 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. This surge in demand has also led to a delivery driver shortage, further complicating the freight shortage situation.
What’s Next?
With the eventual completion of inventory restocking tailwinds, the end of goods-only consumer spending, and the recent acceleration of Class 8 truck orders, the market is expected to stabilize. As the COVID-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. Both contract rates and spot market rates could begin to ease as early as the middle of the year, potentially providing relief to shippers facing high shipping costs.
However, some industry experts are asking, “Is freight slowing down?” While there are signs of potential stabilization, the trucking industry decline and economic pressures continue to pose challenges. Many are wondering why the trucking market is so bad and why freight rates are so low in some segments, despite overall high rates. These fluctuations can be attributed to various factors, including retail slowdowns and the ongoing trucking capacity shortage.
Trucking with PLS Logistics
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 an ever-growing freight network of trusted, reliable carriers and will continue to haul freight every day at the best rates possible. Our team of experienced freight brokers is committed to helping you navigate the challenges of the current transportation market.
To address the ongoing issues, we focus on improving delivery times, optimizing route planning, and strengthening carrier relationships. We also explore innovative solutions such as AI-driven logistics and advance planning to mitigate the impact of the freight recession and shipping backlog.
Our strategies include working closely with owner-operators and implementing driver retention programs to combat the ongoing driver shortage. We understand that solving the truck driver shortage is crucial for the industry’s future, and we’re committed to being part of the solution.
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Sources:
2. 2021 Freight Market Outlook – Sunset Transportation
3. Rates surge, no ‘significant rate relief’ in 2021, Cass says – FreightWaves
5. 2021 trucking outlook comes into focus -FreightWaves
6. Cass Transportation Index Report – Cass Information Systems
