Few working in the American trucking industry will deny that 2020 brought unique challenges to almost every sector of the trucking industry. The ongoing pandemic caused many motor carriers to scramble in Q2, with some losing a significant portion of their outbound freight due to the slowing or idling of some shippers, and adjusting operations to the changing reality became a norm.
Fortunately for transportation, although many sectors of the U.S. economy have been and still are being hit hard by the ongoing pandemic, many motor carriers saw opportunities to place assets with other shippers seeing a surge in business during the pandemic. We have also seen rates rebound, with the future outlook remaining reasonably strong. In late 2020, The American Journal of Transportation reported the national average spot van rate hit a record high of $2.46 per mile, with the overall number of available loads increasing 5 percent more. Refrigerated and flatbed freight rates also saw an uptick as load-to-truck ratios were favorable for rates and contractual supply chain disruptions pushed freight unto the spot market.
Today, the big question on everyone’s mind is what will 2021 bring. Coyote’s Truckload Market Forecast indicated that both demand volatility and capacity constraints are inflationary catalysts, driving up spot rates in the U.S. truckload market. With such variations in the marketplace, many motor carriers are looking into 2021 and beyond. Load-to-truck ratios are anticipated to stay reasonably steady through Q1 of 2021. Coyote also predicted the spot rate market is going to experience a plunge mid 2021 through 2022.
This continued demand is partly due to the online shopping trend. In 2019, U.S. e-commerce sales reached nearly $600 billion, a 15 percent increase from 2018. With the COVID-19 pandemic and people staying inside more than ever, this is expected to reach $800 billion when 2020 figures are tallied, and this upward trend is expected to continue. Consumers are not only ordering more food online, but also larger consumables like clothing, healthcare, appliances, and even cars. Although e-commerce depends on truckers to get their goods from one location to another, last-mile deliveries will continue to become more important.
With this continued consumer demand, why are some predicting the spot market trucking rates to drop in 2021 and 2022? Shippers are preparing their budgets and negotiating hauling contracts in response to this new e-commerce norm, usually on a 12-month cycle. With more freight expected to be hauled under a contractual agreement, the spot market rates are expected to trend downward. However, Deutsche Bank transportation analyst Amit Mehrotra, as reported in a recent FreightWaves article, said his “long-held bullish stance on transportation equities continues unabated in 2021” due to several factors, including upward trends in the industrial economy, housing demand, consumer demand, and inventory restocking.
The article further discusses that the industrial sector will gain in the first quarter as demand for gas, diesel, and jet fuel improves due to the COVID-19 vaccine release and renewed customer demand. Mehrotra is more bullish on the rails and LTLs given their industrial exposure and new opportunities of vacant strip mall storage space being used, at least temporarily, to help service the LTL sector.
To learn more, visit the Bureau of Labor Statistics (BLS) Producer Price Index (PPI), bls.gov/ppi/ppiescalation.htm, for general freight or your specific type of trucking and for a guide to understanding the price adjustment clause.