As inbound container quantities, load volumes and fuel prices have continuously risen throughout the first half of 2021, freight rates and demand across all transportation modes remain high. Although forecasting continues to be unpredictable due to the significant downturn in 2020 skewing year-over-year comparisons, market trends indicate that little to no relief is on the horizon amidst constricted industry capacity and a depleted driver pool.
Spot load posts and rates appear to be stabilizing and are even cautiously forecasted to be trending downward; however, contract rates continue to climb as expected. Unfortunately for shippers, contracted rates are highly inflated, as experts declare we are currently approaching the peak of the market cycle. As a result, as we enter August and September, an unprecedented amount of RFPs will likely be placed by clients looking to secure rates for the remainder of 2021 and into the following year once we have a further understanding of the market’s trends.
As the world cautiously opens back up amidst COVID-19 restrictions starting to lift as vaccination numbers increase, Q2 has seen dramatic intensifications in both spot and contract rates. As consumers can move about and engage fully in the economy, the demand for the production of goods continues to skyrocket. The Coyote Curve discusses how “supply chains have become fragmented after a year of start-and-stop demand. From raw materials to finished goods, companies are now struggling to keep up with a surging economy.” Historically low inventories coupled with problematic forecasting comparisons against 2020 and several weather events and cataclysmic supply-chain drains, such as the Suez Canal Blockage and the ongoing Los Angeles Port bottleneck, container shortages and intermodal capacity constraints, are all anomalies causing crunched truckload capacity and rates to soar. These 2021 differentiators only add to the already cyclical constraints at this time of year, such as the produce market and the soon-to-be rush of freight levels needed to support back-to-school through the holidays.
As carriers struggle to meet demand, they have had to compensate and increase rates due to the recent surge in fuel prices. Fuel equates to approximately 30 percent of the overall cost of any given shipment, impacting both trucking companies and shippers’ bottom lines. Carriers are also waiting much longer than standard timelines to receive orders for new trucks due to the supply chain issues across the industry for components like semiconductors and plastics, again limiting the capacity availability. For those that have secured vehicles, acquiring professional drivers continues to prove difficult. The Federal Motor Carrier Safety Administration’s (FMCSA) Drug and Alcohol Clearinghouse, coupled with the COVID-19 pandemic, has caused an unprecedented driver shortage. In addition, the driver pool and skilled warehousing workers today are an aging population. Recruiting talent to fulfill these vital positions is challenging, causing many providers to increase pay scales and provide incentives, again driving up shipping costs.
Industry analysts and Ascent Global Logistics experts anticipate that contract rates will continue to climb in the coming months as trends dictate that contract rates always lag spot rates by one to two quarters. Due to its volatility, the spot market is also expected to remain inflated; however, reflecting some stability in line with today’s rates and optimistically, we may see a decline of up to five percent by year’s end. Bottom line, year-over-year costs and capacity constraints will remain elevated. We may see a short-term reprieve, but then the holiday peak season will arrive. As we make our way through yet another unprecedented year, it is difficult to predict what contract rates to lock in due to the uncertainty of when the market will flip. Therefore, it may be safer for shippers and providers to forecast that the market will not return to more traditional levels until January and February 2022.
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