Over the past year, dramatic shifts have been felt all across the global truckload freight markets. By comparison to the quieter 2019, 2020 was expected to bring incremental growth in both the economy and the freight markets. As we are all familiar with the current state of the world’s pandemic, these goals were far from met.
Because of the Covid-19 pandemic and all of the economic and social challenges brought on by it, 2020 was a tight year, seeing an increase in spot rates and very high tender rejection levels.
According to the Wall Street Journal, “demand measured by the ratio of loads to trucks jumped 132.5% year-over-year in August on trucking’s spot market, where shippers book last-minute transportation, according to online freight marketplace DAT Solutions LLC. The average spot market price to hire a big rig last month was $2.22 per mile, up 22.3% from the previous year.”
This information has become common knowledge among shippers and freight brokers dealing with these issues in 2020. The more important thing was determining whether this was just an anomaly brought on by Covid-19 or if there was something more to it. This will help shippers, freight brokers, and other stakeholders best position themselves moving forward.
Below, we’ll be looking at some of the truckload freight market trends that will have a significant influence in 2021 and beyond.
Uncertainty Affecting Freight Markets at their Core
The only absolute certainty about 2021 and its freight markets is their uncertainty.
It’s still unknown whether the current vaccination method will bring things back to normal or if this pandemic will continue to worsen. There has also been a significant disruption in people’s personal and professional lives, affecting both income and working arrangements.
Then, there’s the matter of inflation and whether it will remain in check or will liquidity in the markets, alongside capacity constraints, push prices upwards. This trend can potentially affect fuel prices as well drivers’ wages. Given the high levels of uncertainty, the best course of action for freight brokers and other stakeholders in the industry is to mitigate risk. They need to focus on short-term execution while keeping an eye on long-term results.
Procuring capacity will consistently prove to be a challenge in 2021, and it won’t be from a lack of trucks. The drivers are the lead to this trend. While driver compensation is rising to increase supply, there’s a combination of other factors at play, making the situation more complicated.
According to the American Trucking Association, the average truckload driver is roughly 46 years old, the average age of new drivers being trained is 35, and the average age for a commercial truck driver is 55. The Drug & Alcohol Clearinghouse will also continue to limit the available personnel. The Covid-19 pandemic has only added more concerns to individuals entering the trucking industry and challenges the low level of enrollments during 2020.
In addition, federal regulations that restrict drivers between the ages of 18 to 20 to drive Class 8 commercial motor vehicles across state lines ensure that the trucking industry is not a desired career path for recent high school graduates looking to start a career. Lastly, as the US market is reopening, the backlog of demand for goods will increase beyond traditional levels, even outside peak season.
Over time, capacity bottlenecks will be reduced but, in the meantime, it will lead to higher freight rates and insufficient capacity.
The Changing Supply Chain Network
In 2020, supply chains were forced to change. While some industries were utterly devastated by the pandemic, others have thrived. In addition, the uneven and varied responses to Covid, both in terms of geographical regions and individual states, led to “lumpy” supply chains.
During the 2020 lockdowns, retail markets saw their transformation accelerate from fewer people going to brick-and-mortar stores and opting, instead, to eCommerce. With the new customer behavior becoming more commonplace, there is strong speculation that there may never be a return to previous levels of fulfillment direct to the consumer and that warehouses will become the new retail occupation.
That said, these new supply chains were created out of necessity and not for efficiency. It will take some time before these will be optimized and start operating near to past costs levels.
High Freight Rates Will Continue Well Into 2021
Freight rates are always determined by the environment in which they operate. And given the highly uncertain economic climate, the capacity constraints due to the driver shortage, and the altered supply chains, it’s fairly easy to see how freight rates have been pushed high.
As mentioned, driver compensation is increasing. Similarly, there are signs of greater litigation risk, which has also pushed insurance rates in the trucking industry to rise. It should also be mentioned that inflationary pressures resulting from the 2020 monetary policy could increase fuel costs and affect the previously mentioned factors.
Over-the-road truckload spot rates have also increased at an average of around 22%. However, some shippers have experienced freight rate increases on the same loads and/or lanes that were up to 30% or even 50% higher than previously experienced.
More Government Spending
With a new administration coming to power in 2021 and holding control of the White House and both chambers of Congress, new policies could be implemented that may have a wide range of effects on the trucking industry. Any additional unemployment assistance, stimulate consumption, and increase freight volumes could also sideline drivers from returning to the labor market.
Additionally, increased mandatory carrier insurance minimums could force many small players out of business. The new administration is looking to implement an infrastructure program that will kickstart numerous construction projects across the country that could push truck drivers to get new jobs closer to home. These factors could have long-term effects on demand.
Need For Rate Intelligence To Help Predict Freight Rates
A lack of supply chain visibility remains a top challenge for most stakeholders within any supply chain. Around 69% of supply chains lack complete visibility, while 56% experience supply chain disruptions annually. These issues were experienced even before the significant disruptions 2020 had on affecting the freight market. However, a lack of visibility amounts to an inability to mitigate risk and stay ahead of trouble.
And as the peak season comes in, businesses will begin experiencing the driver and capacity shortages mentioned earlier. As such, freight rates will continue to rise. Without enough supply chain visibility, organizations will not be able to move freight and take advantage of trucking capacity. This may lead total landed costs to skyrocket.
But by making use of rate intelligence leveraged through AI and machine learning, freight brokers will be in a far better position to access product rates and prices.
What Steps Can Freight Brokers Take to Mitigate These Freight Market Trends
Freight brokers need to consider these trends in 2021 and beyond if they wish to stay ahead of the competition and thrive in the new environment. So, what are some proactive and anticipatory steps that freight brokers can take to mitigate these risks?
First of all, they need to be less transactional by nature and establish a pool of stronger working relationships with partners and carriers in the industry. Secondly, they need to find a middle ground between shippers and carriers to share higher-than-desired rate levels and increases in return for a guaranteed capacity.
Thirdly, freight brokers need to use state-of-the-art transportation management software (TMS) capable of mitigating risk and optimizing processes. Tai Software is a logistics industry solution that addresses every aspect of the shipment life cycle. Therefore, Tai Software is an excellent TMS platform for freight brokers.
Tai Software can help manage the entire FTL and LTL workflow from a single, centralized location. It allows freight brokers to create loads and source coverage from within their network and sort that network based on carrier preferences. Load boards are directly integrated, allowing brokers to post loads from a single page within the platform’s automated tool.
Carrier bids also feed directly into the Tai platform, allowing brokers to quickly onboard new carriers. Also, their details will automatically be conveyed to the respective onboarding team, streamlining the workflow and allowing for both increased saving and the possibility to scale.
Tai TMS gives shippers unmatched visibility into every shipment, increasing customer experience while minimizing the risk of theft. With its Mobile App, Tai Software continuously updates directly into its self-service portal, providing both the freight broker and its customers with on-demand visibility into every shipment.
With a dedicated team of logistics software experts with over 20 years of freight software experience, our team is here to ensure your success. Request a free demo today and stay ahead of the curve!