Transportation Rates Forecast: Q4 2021

October 14, 2021

10 min read

RESOURCES // BLOG

Make sure you understand how North American transportation rates affect your business performance in 2021. Our transportation management experts share their forecasts, industry analysis and actionable guidance to support your strategy for Parcel, LTL, Truckload and International transportation.

Ongoing disruption across the global supply chain persists into Q4 as shippers find their peak season emerging sooner than ever before.

Port congestion, imbalances in equipment and shortages in workers – from the foreign supplier to the final domestic destination – all pressure the transportation rate and service environment, and create challenges for shippers and carriers as the year ends.

Time-in-transit delays, LTL detention charges, volume-based parcel surcharges and climbing packaging prices can ultimately affect your profitable performance, your customers’ satisfaction – or both.

By maintaining visibility to changes in the transportation landscape, you can continue to move shipments in a timely manner, monitor costs with precision, and keep your business partners informed in a time- and cost-sensitive environment.

Transportation Insight’s experts offer Q4 insight in parcel, less-than-truckload, truckload, and brokerage environments to support your transportation management. By combining that expertise with our proprietary transportation management and visibility technology, our shippers and our carriers can accelerate their competitive advantage – even during the new normal of disruption.

Key Influences on Transportation Costs

Diesel fuel retail prices reached their highest monitored point since December 1, 2014, at $3.586 per gallon.

How do Transportation Costs Affect Revenue for Goods Produced?

According to analysis of Bureau of Labor Statistics data, performance indices for Parcel, LTL and Truckload held firm on year-over-year and quarter-over-quarter increases as capacity constraints persist across all modes.

While index performance for final demand has accelerated upward with a 11.5% YOY increase, the Truckload index increased 17.5% over the same time frame. Although LTL and parcel indices increased at a slightly slower rate than final demand, capacity constraints and additional announced increases from small package carriers will maintain upward pressure on rates.

Parcel Forecast: Peak Holiday Season Surcharges

Shipping costs have already increased with holiday surcharges now in effect for U.S. Postal Service (Oct. 3), UPS (Oct. 3) and FedEx (Oct. 4) and continuing through mid-January. These surcharges confuse many shippers when they receive their invoices.

Parcel peak holiday season surcharges will add about $6 per package for UPS and FedEx customers until mid-January

Along with a flat price per package surcharge for Additional Handling, Ground Economy (formerly FedEx SmartPost) and big and bulky packages (Oversize for FedEx and Large Package and Over-maximum for UPS), both carriers are implementing surcharges on Residential delivery based on volumes. UPS includes SurePost in this volume-based surcharge.

As such, shippers will need to be mindful of the fine print in each carrier’s announcement to understand how the volume-based surcharges are calculated and monitor shipping charges carefully throughout the season.

UPS and FedEx shippers will face volume-based surcharges beginning Nov. 1

Parcel Forecast: FedEx Ground Rates in 2022

After eight years of 4.9% average annual rate hikes, FedEx announced a 5.9% average annual rate increase effective Jan. 3, 2022.

 According to the FedEx announcement, these changes in costs are associated with “the challenging operating environment, while enabling FedEx to continue investing in service enhancement, fleet maintenance, technology innovations, and other areas to serve customers more effectively and efficiently.”

FedEx Ground Rates increases vary based on package size, with increases of more than 7% on 1-5-pound packages

Parcel Forecast: FedEx’s Ground Minimum Rate Increase

FedEx’s Ground Minimum rate (Zone 2, 1-pound) increased 7.6% year-over-year, the highest increase since 2014. Last year’s increase was 6.4%. Most contracts only provide discounts after the minimum is met, so it is critical to understand the impact of the rate increase after minimum contract levels are applied.

FedEx increased the cost of shipping a Zone 2 1-pound package 7.6% for 2022 up to more than $14.

3 Parcel Tips for Q4

  1. Set expectations and communicate with customers regularly. Worker shortages at FedEx, UPS and other carriers will likely impact last-mile delivery on-time performance.
  2. 2. Diversify last-mile options. Available capacity is tight for some carriers, while other carriers will determine capacity availability on how profitable a shipper is for them.
  3. 3. Don’t wait until January. Start planning for holiday season 2022 now.

Less-than-Truckload Forecast

LTL volume is at peak and capacity will only get tighter until the middle of December. Overflow from parcel will play a big part in that through the end of the traditional holiday peak season. Truckload capacity challenges are driving additional volume into LTL.

At the same time, in certain lanes there is some softening, and some LTL carriers are considering  additional volume. Don’t expect any rate relief, however; and service won’t likely improve as capacity improves.

Non-conforming freight (over length, poorly packaged, residential delivery, etc.) will continue to be a challenge to move.

Staffing challenges – of both drivers and dockworkers – will continue to affect service levels. Carriers are raising wages and offering incentives, and while hiring is occurring, vaccination requirements may slow the process.

More carriers are assessing detention charges, often driven by congestion at distribution centers.

Be mindful of weather conditions in Q4 (hurricanes, winter weather, etc.) that may cause intermittent embargoes in affected areas.

Expect carriers to continue catching up with demand and a likely levelling off in the New Year. Companies are building inventories as just-in-time shipments are less dependable in their supply chain. September’s shutdown of automotive production facilities will have a trickle effect on many associated industries using LTL shipments.

5 LTL Tips for Q4

  1. Budget planning: Expect rates to be 6-12% above current levels for 2022.
  2. Take care of your carrier partners. You don’t want to lose a transportation provider right now.
  3. Leverage technology to understand where carriers have capacity and consider alternatives. Maintaining awareness to least-cost options – and utilizing those options – can generate significant savings.
  4. Allow for more time in transit and plan accordingly. Important steps to take include setting expectations with consignees, adjusting inbound material orders to maintain smoother production schedules and communicating with customer service to prepare for response.
  5. Regional and deferred-service carriers, even local couriers, offer alternatives for small impact moves where there’s no capacity available or you are affected by an embargo. Expect a slower level of service.

Truckload Forecast

Expect to see elevated spot and contract rates. Additional rate increases in both spot and contract aren’t likely in most lanes. Certain areas (California) may see increases in spot rates, but otherwise, prices will hold at current levels through the quarter and likely into Q2 2022.

Capacity will be strained through Q4. Additional disruption could significantly affect those rate expectations.

  • COVID: A plant experiencing a slowdown due to worker shortage could affect inbound/outbound shipments in a market, creating equipment imbalances that take weeks to unravel. The effects of the pandemic and emerging vaccination regulations continue to effect driver hiring and availability.
  • Increased pressure on capacity. Retail season adds volume. Port congestion continues to affect rail traffic and pushes additional volume into over-the-road. Commercial air travel is down, reducing cargo capacity and adding more pressure to the trucking environment. Ongoing aggregation and consolidation of LTL shipments consumes more equipment.

Driver hiring could reduce capacity pressure – and rates – for the short- and long-term. Phase out of federal pandemic benefits may put more drivers on the road. If not, high rates and new equipment coming online will entice more drivers to the market. That will eventually affect demand and rates.

New for-hire carriers are entering the market at record levels. Operations with 1-4 power units further fragment the market, but they offer shippers reliable spot volume that they can turn into contract with their broker.

International shipping will continue to cause disruption. The drayage network is strained at the port, rail and crossdock. Problems in the intermodal network make positioning equipment a challenge. At the warehouse, customers eager to access shipments stalled at sea are consuming spot capacity. Combined, the cost to get goods can reach a high mark.

6 Truckload Tips for Q4

  1. Budget Planning: Expect an aggregated 5-7% increase in truckload costs in 2022. Increases will be weighted higher in Q1/Q2, but Q3/Q4 will bring the overall average down.
  2. Be flexible on pick-up days and pick-up times. Can you be flexible on hours of operation to capture later afternoon or overnight trucks and access additional capacity?
  3. Give your carrier as much lead time as possible.
  4. Consider on-premise parking. With one parking space for every 11 trucks on the road, an overnight spot or quick unload can help a driver regain hours and speed up drive time.
  5. Examine habits for buyers and sellers. Adding time in the cycle could allow you to completely fill a truck instead of sending multiple, smaller shipments.
  6. Rely on technology to access capacity and improve performance. Access a virtual fleet in every market. Execute and monitor transportation activity. Gather and analyze information and find out where to improve your network, lock-in long-term capacity solutions and improve your ability to respond to disruption.

International Forecast

The traditional peak season for international transportation, ocean shipping capacity constraints and pre-existing complications continue to create upward pressure on ocean shipping rates.

  • Imports to Los Angeles fell 5.9% year-over-year, amid heavy congestion, including a record number of container ships awaiting service off the U.S. West Coast.
  • Cargo volumes between Asia and North America were up 27% compared to pre-pandemic levels, according to shipowner association BIMCO. Unprecedented import volumes are expected to continue well into 2022.
  • Port congestion is exacerbated by equipment shortages. Expect the U.S. chassis supply to be stressed into 2022.

Pricing and capacity relief is not likely in 2021 and may not occur until global pressure recedes after the Chinese New Year in Q1 2022 – at the earliest. A return to pre-COVID costs for ocean containers may never occur.

Air rates will continue to be elevated as excess capacity not shipped by ocean will continue to spill over into the air environment where commercial traffic is still struggling to rebound.

5 tips for Q4 International Transportation

  1. Prepare for higher costs, and consider alternative approaches.
  2. Be ready to quickly shift modes – ocean to air. Take advantage of capacity where you can find it, even if it isn’t your typical container. Be flexible about your point of origin.
  3. Strength of partnership is more important than ever. A lot of shippers are fighting for space. It helps to have trusted providers in place.
  4. Import planning and forecasting is difficult, and it likely requires you to work with vendors and plan a longer time horizon. This helps you better react when disruption happens.
  5. Examine your inventory planning. If you are relying on just-in-time strategies, you may need to consider a different inventory strategy that mitigates risk and buffers the impact on the end customer.

Indirect Spend Forecast

Product availability continues to be a critical issue across most packaging categories. Many analysts believe that paper products will continue to be an issue throughout Q4. Some predict another linerboard increase which would push box prices up further.

  • The fourth linerboard increase in less than 12 months was announced in late August as Resource Information Systems Inc., Pulp & Paper Weekly published a $50 per ton hike. With the increase, linerboard is up $160 per ton since Q3 of 2020. That translates to carton increases of 24-30%. All other paper-related packaging materials (Kraft paper, corner boards, chip board, bags and dunnage) have experienced similar increases.

Polyethylene products (poly bags, stretch film, etc.) are expected to level out in Q4 with lead times beginning to decrease somewhat. Expect continued volatility in these markets through Q1 of 2022.

  • Polyethylene resin prices increased in July for the eighth consecutive month. The cumulative impact of all increases going back to June 2020 is greater than 100%.
The price for plastics materials and resins have increased 45.6% in the past 60 months, nearly triple the rate of inflation
Over the past 60 months, Producer Price Index Final Demand Finished Goods has moved up 16.2%, while the index for Plastics Material and Resins Manufacturing has increased 45.6% – nearly triple the rate of inflation. January 2021 marks an inflection point when plastic/resin prices diverged sharply from wholesale prices.

Steel prices are up significantly. The Wall Street Journal cites a Midwest steel index calculated by CRU Group that estimated steel prices at $1,940 a ton at the start of September, up from around $560 in September for both 2019 and 2020. That is pushing up prices in maintenance products categories (bearings, fasteners, cutting tools, etc.)

Additional Learning

Find Parcel Shipping Capacity in Peak Season

Parcel experts identify risks during peak season and offer tips to diversify your carrier mix and protect service to your customers. Watch the webinar on demand

What are the benefits of Managed Transportation?

Read the case study to learn how a Transportation Insight managed transportation solution combining technology and expertise helped one customer achieve a 251% Return on Investment.

Audit Transportation for 10-20% Cost Savings

Read the blog to learn how an audit of transportation activities can uncover significant cost savings despite volatility in parcel, LTL and truckload environments.

Transportation rates forecast for Q3 of 2021

With capacity constraints at the beginning of the year, on the heels of pandemic, transportation rates challenges from the first half of 2021 should continue into the second half.

  • Capacity demands drive up rates across full truckload’s spot and contract markets.
  • Costs increase in less-than-truckload lanes, even while service declines.
  • Small parcel carriers look ahead to another holiday peak, even though consumers’ e-commerce appetite has gobbled up capacity since the last peak.
  • International shipping still bears the weight of global pandemic, exacerbating global supply chain disruption.
  • And fuel prices are driving up costs everywhere.

Serving your customers in this environment depends on your consistent visibility to transportation activities and costs. Moving freight requires strong logistics carrier management practices, including solid partnerships with reliable providers, contingency plans – and patience. Controlling costs relies on ongoing analysis of strategy, compliance and performance, as well as agile course correction supported by experts.

Read on to understand the Q3 transportation rates trends that will affect your transportation management and get advice to help protect your performance.

Economic Conditions: Diesel Fuel Prices Increasing

U.S. diesel fuel prices have climbed 38.5% from a low in November. That is affecting transportation costs. Parcel carriers are escalating fuel surcharges, and fuel costs will be an increasing factor for over-the-road freight, especially during the traditional summer travel and shipping season.

U.S. Energy Information Administration’s Diesel Fuel Prices through June 21, 2021
U.S. Energy Information Administration’s Diesel Fuel Prices through June 21, 2021

The Energy Information Administration (EIA) forecast shows that the average diesel retail price per gallon is $3.29 as of June 21, the highest average since May 28, 2018. Diesel fuel prices averaged $2.55/gal in 2020. EIA’s updated 2021 forecast is an average $3.07/gal., an increase of 13 cents since Q2 estimates. 

Economic Conditions: How Do Transportation Rates Affect Revenue for Goods Produced?

The Producer Price Index (PPI) measures cost trends for everything manufactured in the U.S. This custom performance index reflects the rate of PPI change compared to the rate of change in transportation costs.   

Transportation costs compared to producer prices reflects sharp gains in the price of moving freight.

Performance indices for Parcel, LTL and Truckload increased year-over-year and quarter-over-quarter as capacity constraints persist across all modes. Of note, the Truckload index increased 28.5% YOY and 12.8% since January 2021. LTL increased 9.1% compared to 2020, and 4.1% compared to January 2021. Parcel continues climb as well, rising 7.8% YOY. 

Economic Conditions: E-Commerce Sales Climb Continuing

First quarter 2021 e-commerce sales reached $215 billion, a 7.7% increase over Q4 2020. Year-over-year, the Q1 2021 e-commerce estimate increased 39.1%. While consumers’ return to physical stores may affect some e-commerce activity, analysts expect strong sales to continue.  

: E-commerce Sales as a Percentage of Total Retail Sales 2017-2025
Source: eMarketer

One survey of more than 1,000 consumers in late March and early April by consulting firm AlixPartners LLP showed one-third of U.S. shoppers plan to continue buying clothing online, while 25% intend to keep ordering groceries that way.

U.S. Department of Commerce announces the Q2 2021 e-commerce retail sales estimate August 19. 

How does this affect your cost?

Do you use poly mailers, shipping bags or shrink film? Ongoing domestic demand driven by e-commerce, pharmaceuticals, hygiene, food and home meal deliveries all pressure prices on polyethylene products used in your supply chain.

  • Resin prices up 87% cumulatively over the past 12 months.
  • Suppliers announced 5-7 cent per pound increase in June, following a 5-6 cent increase in May.
  • Supply is extremely constrained, and sales allocations or force majeures remain in place for most producers.
  • Upcoming hurricane season could exacerbate supply constraints as plant operations struggle to reach full capacity.

Transportation Rates Environment: Small Parcel

Ongoing issues will continue into Q3. Capacity constraints will become more pronounced ahead of the holiday peak season as retail sales events such as Amazon Prime Day, back-to-school and Labor Day sales events lead into a holiday peak season beginning in October.

UPS continues to focus on value versus volumes. If a shipper’s volumes are not profitable to UPS, they could either be dropped as a customer, experience capacity cuts and/or higher rates and surcharges. FedEx is also embracing value over volumes and is implementing similar measures.

COVID-related peak surcharges from UPS remain in place apart from surcharge changes implemented on July 4 and continuing through Jan. 15. Based on how much a shipper’s average weekly volume increases compared to the average weekly volume in February 2020, the surcharges could reach $6.15 per package.  

Large package shippers face additional problems with UPS surcharge increases, including a 50-cent hike on “additional handling” effective July 4. From Oct. 3 until Jan. 15, that fee increases to $6 per package, a jump of $3 compared to today’s cost.

FedEx is likely to follow suit with similar surcharge changes for holiday peak season.

Crowd-sourced delivery platforms such as Instacart and DoorDash are expanding their partnerships with retailers and services. Other logistics providers are moving into the parcel management space. We will likely see more moves linking freight brokerage and parcel management as a way to provide a one-stop-shop to find parcel shipping capacity.

Q3 Action Advice: Parcel Transportation

Diversification of last-mile solutions will be even more important as more carriers limit capacity. Shippers need to quickly lock in capacity requirements with carrier partners for the peak holiday season and also have back-up plans just in case carriers cut shippers’ capacity. A contract will not necessarily save a shipper.

For the rest of this year and likely into 2022, shippers need to be creative in managing their last-mile strategies while keeping a careful watch on their costs. Those with storefronts will prove successful by offering alternative last-mile solutions such as curbside and buy-online-pick-up in-store (BOPIS). Shippers without a physical store may want to consider partnering with a storefront retailer or another operator. 

Shippers will continue to struggle with higher supply chain costs, capacity constraints and delays for the foreseeable future. As a result, regular communications with supply chain partners and customers will be necessary as inventory stockouts, and delivery delays may become the norm versus the exception in the coming months 

Transportation Rates Environment: Less-than-Load

Q3 is busy season for LTL transportation. This year, expect costs to increase and service to decline as capacity gets tighter and temporary targeted embargoes continue.

  • Labor shortages accompany the summer vacation season for LTL drivers and dock workers. Open positions with high wages and sign-on bonuses are difficult to fill.
  • Retail volume is moving in support of the Q4 holiday peak.
  • As parcel service levels suffer, shipment consolidation drives volume into LTL.

Many major carriers are not accepting new business, and others that are taking RFQs will not likely publish until later in the quarter.

National LTL fuel surcharge averages are consistently trending upward.

Expect some carriers to pursue out-of-cycle annual business reviews and implement transportation rate increases, especially if your shipping characteristics are cost-intensive.

Maintain skepticism for carriers’ announced “on-time performance” especially as service delay designations can eliminate shipments from that metric.

The FedEx Freight move to reduce outbound volume for 1,400 customers – and then rescind the service cuts following blowback from large retailers – is indicative of ongoing capacity challenges. Other carriers are asking customers to limit shipment sizes in certain lanes.

Potential Disruption: On July 5, FedEx Freight implements an unprecedented peak surcharge on LTL shipments to nearly 1,000 zip codes, about 2.3% of zip codes in the U.S. Th

Q3 Action Advice: LTL Transportation

Stick with your existing carrier partners. Collaborate with them to work through service issues. Consider an alternate approach to cost control.

  • Blocking a service provider only puts your committed capacity into the hands of another shipper.
  • When many carriers are not accepting new business, you might not find capacity elsewhere.
  • In the current environment, another provider is unlikely to improve service levels.

Allow for more time in transit and plan accordingly. Important steps to take include setting expectations with consignees, adjusting inbound material orders to maintain production and communicating with customer service to prepare for response.

Regional and deferred-service carriers, even local couriers, offer alternatives for small impact moves where there’s no capacity available or you are affected by an embargo (including FedEx Freight’s limit on volume). Expect a slower level of service. which is better than no service. Expect a slower level of service.

Transportation Rates Environment: Full Truckload

All indicators point toward a full truckload environment with tighter capacity, elevated contract transportation rates and astronomical spot rates continuing into Q3.

  • Truck delivery delays
  • Inability to hire drivers
  • Ongoing capacity demand

Recent Purchasing Managers Indexes revealed elevated expectations for future growth in production – and products on the road.

Food and beverage shippers moving freight into grocery warehouses continue to face chargebacks for missing delivery times or not fulfilling an order in full.

Expect a brief “breather” toward the end of July, potentially into August and September, but do not plan for a downward trend in rates and capacity demand ahead of the retail peak season.

Produce season in Q3 creates added strain on capacity in traditional patterns that vary market to market, but don’t expect it to be more than another aggravator in the cost environment.

International shipping disruption continues to waterfall into over-the-road transportation:

  • Smaller shipments are moving into LTL lanes.
  • Increased on-shoring of manufacturing is driving more freight into over-the-road capacity.
  • Intermodal transit times and rates are up, eliminating modal conversion as an option.

While some spot market rate relief may come in late July, do not expect contract rates to follow.

Q3 Action Advice: Truckload Transportation

Be flexible with pick-ups and deliveries – even within shipping hours.

Lead time goes hand-in-hand with flexibility, and it is paramount to tender acceptance.

Maintain a realistic understanding of your capacity consumption and carrier service levels.

Carriers are not chasing higher-dollar freight, generally, but they may be hauling an equal or larger volume of business than last year in a more cost-intensive, capacity constrained environment – especially if your sales are up.

For freight enduring added cost when moving into a facility with a chargeback program for “on time and in full” (OTIF), understand the cause and frequency of the charge and make a business decision of absorbing that cost versus penalizing your carrier partner. Penalizing your partner may mean paying more on every load.

Transportation Rates Environment: International

Coming into traditional peak season in the August timeframe, COVID-driven port closures in southern China are causing severe disruption in ocean shipping. This will have a long-lasting effect on supply and demand for containers, ocean and air capacity. Demand for inbound shipments will continue to surge.

Everything that is moving is moving at a premium and moving with surcharges. Shipping costs are at historically high levels. These costs are going to increase in a substantial way over the quarter, in some lanes by multiples of their cost prior to COVID.

Demand for air freight is increasing, driving up costs as capacity issues build, especially until passenger flights fully resume. This limits further your ability to contingency plan for international freight.

Port congestion on the U.S. West Coast is slowly improving. It is still a challenge, but throughput is gradually getting better. The opposite is true on the Asian side of the balance, but as ports re-open fully returning vessels could make West Coast ports a greater pinch point.

Expect ocean shipping disruption to continue through peak season. This not only affects significant volumes coming from Asia, it affects U.S. exports as well. Container demand in Asia is high and drawing empty equipment back to China without waiting to match with a U.S. export load. This will continue to have an impact into Q4 and 2022.

Q3 Action Advice: International Transportation

Acknowledge the reality, prepare for higher costs, and consider a unique approach. Larger companies with buying power are being extremely creative to solve challenges. Not every business can buy a container ship (like Home Depot), but small- and medium-sized business need to explore outside-the-box solutions.

Be prepared to quickly shift modes, going from ocean to air. Find ways to shift equipment, taking advantage of capacity where you can find it, even if it isn’t your typical container. Can you mix up how you are consolidating? Be flexible about your point of origin.

Strength of partnership is more important than ever. A lot of shippers are fighting for space, and it is not just a cost game. This is where it helps to have trusted providers in place.

Import planning and forecasting is difficult in this environment. Depending on your industry, planning and projections are traditionally complete for the coming peak season. This environment calls for extending that timeline forward where you can, working with vendors and planning on a longer time horizon. This can help avoid disruption and position you to better react when it does happen.

Examine your inventory planning as ongoing disruption strains just-in-time strategies. Conditions in the transportation marketplace may factor into the discussion around a different inventory approach that mitigates risk and buffers some of the impact on the end customer.

Transportation Rates Environment: Indirect Spend

Freight and labor costs, as well as demand, are up in recycled paper and corrugate markets.

  • Paper costs increased $100/ton cumulatively the past six months, but stability is expected until Q4.
  • Recycled paper demand was up 6% in Q1.
  • New grocery bag machines coming online adds additional pressure on kraft paper supply.
  • Two large lightweight kraft paper producers left the market, transitioning to alternate heavyweight kraft and linerboard products. Mills are “sold out,” and inventory is 75% of desired levels.
  • Box shipments were up 6-8% in Q1.

Linerboard costs increase $110/ton cumulatively since November 2020. Carton prices up as much 20%.

  • Box shipments were up 6-8% in Q1, and containerboard mills are unable to keep up with demand increases. Production was up 9% in March, year-over-year.
  • Old Corrugated Containers Prices increased in May for the sixth consecutive month.

Major office paper producers announced increases to take effect July 1 after 6-8% increase in March.

Pallet Prices are up +50%, and supply is very short. Manufacturers are urging shippers to find alternatives.

Truckload Transportation Market Conditions

  • Truckload transportation rates forecast to remain high but steady, then increasing during capacity crunch season, which accompanies the produce season and leads up until the July 4 holiday.
  • Fuel prices are part of the conversation again. EIA forecasts predict summer diesel prices will be higher than last year but then reflect a normal dip.
  • Most equipment types (van and reefer) are experiencing a drop in demand, but do not expect a dramatic effect on rates.
  • Short-term contracts will come at premium rates and so will spot market pricing, but tender acceptance will be good.
  • International Road Check may cause disruption May 4-6 and into the following week. Demand may increase due to reduced freight movement during the highway safety inspections.
  • Advice for Q2: Maintain consistency with your carriers, trying to contract where possible to avoid an elevated spot market. Care­ful procurement practices in the months ahead (contract vs. spot market freight) sets the stage to capture downward price trends in transportation rates during the second half of 2021.

Less-than-Load Transportation Market Conditions

  • Demand on LTL capacity is unprecedented, driving some carriers to decline new or expanded business in order protect service to their existing customers.
  • Expect embargoes to continue in lanes affected by volume spikes and capacity constraints.
  • Carriers continue to scrutinize each piece of business, monitoring payables, escalating collections, limiting credit and diverting capacity to “shipper of choice” customers.
  • Pricing renewals are increasing and so are rates sought by LTL carriers, especially those emboldened by aggressive new price “right-sizing” promised by UPS Freight’s new owners, TFI International.
  • Q2 Advice: Rely on analysis – not rates – to achieve savings. There’s no ground to gain in procurement and rate negotiations, but routing decisions and least-cost carrier selection will maximize your transportation dollars.

Small Parcel Transportation Market Conditions

  • Both UPS and FedEx are taking a more intentional approach to pricing.
  • FedEx rebrand from SmartPost to Ground Economy opens opportunity for broad pricing adjustments focused on improving revenue quality of packages delivered.
  • UPS “better not bigger” approach is emerging: evaluation of customer contracts, volume caps and negotiation of mid-term increases to certain customers.
  • Capacity challenges continue for FedEx, UPS and every major regional small pack­age carrier, allowing each to be selective on the volume they accept.
  • Peak surcharges and certain suspended service guarantees spurred by COVID continue – but for how long? UPS and FedEx re-instated guarantees for some services, but we expect many others to be suspended until the country re-opens more fully.
  • The UPS move to zonal pricing for Additional Handling Surcharge and the Large Package Surcharge will have a material impact for many shippers.
  • Fuel surcharges are escalating quickly since the start of 2021.
  • Advice for Q2: Begin planning for Christmas 2021 today. Lessons learned through expert analysis of your 2020 data can help you design a small parcel program that protects your profit margin, controls cost and supports service to your customers.

International Transportation Market Conditions

  • Lingering effects of the Suez Canal disruption will continue for several months.
  • Port congestion has expanded beyond West Coast backlogs to include East Coast ports, and booking availability is sparse after an over-booked April.
  • Ocean transportation rates remain high, capacity is still extremely tight and the challenges in the domestic logistics funnel (drayage and rail) remain high.
  • Tightening ocean capacity is driving up demand and rates for air freight.
  • Advice for Q2: Reassess your inventory strategy. Global supply chain disruptions highlight the weakness of lean, just-in-time practices and may emphasize your need for additional buffer inventory, especially if your e-commerce fulfillment relies on import/export activity. Contingency planning should be part of each strategic planning meeting as we go through 2021.

Indirect Spend Market Conditions

  • E-Commerce demand is growing faster than capacity and packaging costs continue to climb.
  • Corrugated prices increased 10-12% in March – on top of increases announced in November 2020.
  • Expect stretch film manufacturers to announce another increase in April.
  • Paper board tubes and cores are increasing at least 6%.
  • Lead times are expanding out to 4-8 weeks.
  • Costs are up 17% since November 2020 on recovered paper and old corrugated containers (OCC).
  • Two large office supply providers announced copy paper increases of 6-8% in March.
  • According to the ISM Report on Business, activity in U.S. manufacturing grew for the 10th consecutive month in March, reaching a PMI reading of 64.7 – the highest in 37 years. The U.S. Industrial Production Index registered 104.65 in February – up 13.38% since March 2020.

Economic Conditions: Diesel Fuel Prices Climbing

U.S. diesel fuel prices have climbed 32.1% from a low in November. That is affecting transportation costs. Parcel carriers are escalating fuel surcharges, and fuel costs will be an increasing factor for over-the-road freight. The Energy Information Administration (EIA) forecasts summer diesel prices will be higher than last year.

Energy Information Administration’s Diesel Fuel Prices through May 10, 2021.

Average retail price per gallon was $3.18 on May 10, up 4 cents from May 3, but still below the March 22 peak of $3.19, the highest average since Dec. 3, 2018. Diesel fuel prices averaged $2.55/gal in 2020. EIA’s updated 2021 forecast, as of May 10, is an average $2.97/gal., a 3-cent increase compared to last month’s estimate.

Economic Conditions: Transportation Rates Affect Profit

The Producer Price Index (PPI) measures cost trends for everything manufactured in the U.S. This custom performance index reflects the rate of PPI change compared to the rate of change in transportation costs.

Producer Price Index compared to increasing transportation rates from 2007 through Q1 2021.

Performance indices for Parcel, LTL and Truckload increased year-over-year and quarter-over-quarter as capacity constraints persist across all modes. Of note, costs increased 13.85% YOY for truckload. LTL increased 7.85% compared to 2020, and 9.59% compared to Q1. Parcel continues to lead all indices, climbing 5.84% since last year and 6.52% since last quarter.

Economic Conditions: E-Commerce Sales Climb Continues

Total estimated e-commerce sales for 2020 reached $791.7 billion, an increase of 32.4% from 2019.

E-commerce sales in 2020 accounted for 14% of all U.S. retail sales, which increased 3.4% in 2019.

Fourth quarter e-commerce sales reached $245.3 billion, a 23.1% increase over third quarter 2020. Year-over-year, the fourth quarter 2020 e-commerce estimate increased 32.1% compared to the same period in 2019.

Looking ahead, expect Amazon Prime Day on June 21-22 to drive an uptick in e-commerce activity, as well as a bump in small parcel volume.

E-Commerce Retail Sales as a percentage of retail sales continue to climb, reaching a peak at the start of pandemic in Q2 2020.

U.S. Department of Commerce announces e-commerce retail sales estimates for Q1 2021 on May 18.

Transportation Industry Outlook: Q1 2021

Truckload Forecast: Freight Rate Increases Continue

  • Given ongoing capacity constraints, the truckload market will see rates continue to increase for at least the first half of 2021.
Expect Q1 Truckload rates to increase 3-5% for contracted lanes and 5-7% on spot market bids.

  • More shippers will lock in contractual transportation rates.
  • Expect an uptick in tender acceptance and improved ability to move freight with primary, secondary and tertiary carriers.
  • Stabilization and loosening of West Coast intermodal volume allows shippers with network visibility to seize cost savings. Expect some stabilization after the Chinese New Year.
  • Capacity will improve and alleviate rate pressure following a boom in new equipment purchases.
  • Working with Transportation Insight helps make you a shipper of choice to mitigate increases to transportation rates, strengthen service and improve access to capacity.

LTL Forecast: Freight Capacity Shortages, Volume Levels Increase

  • Expect capacity shortages, service charges and elevated rates to continue.
  • LTL volume levels will maintain or increase throughout 2021.
  • Carriers continue to be selective about the new business they accept.
  • Service challenges will continue in California in the foreseeable future
  • Detention and storage charges have become more common.
  • Shippers who continually switch carriers to improve service may find their efforts fruitless. Conversely, “shipper of choice” practices deliver rewards.

Small Parcel Forecast: Surcharges, Cost Complexity Continue

  • UPS reinstated Pre-Holiday Peak Surcharges until further notice:
    • UPS Ground Residential Service and UPS SurePost, as well as large packages and those that require additional handling.
    • Surcharges on Ground Residential and SurePost packages will apply to any shipper that has shipped more than 25,000 packages in any single week since February 2020.
  • FedEx Peak Surcharges will continue, with new rates implemented for some services until further notice:
    • 75-cent SmartPost surcharge – down from $1-$2 in place for the holiday season, but higher than the 40-cent surcharge in June.
    • $30 surcharge on oversized package – down from current $52.50
    • Additional handling will be reduced from $4.90 to $3.
    • Expect a competitive, but rational parcel shipping landscape to emerge later this year.
  • Look for more parcel competitors to grab opportunities the larger carriers are overlooking. Heightened competition will benefit shippers who can optimize carrier utilization.
  • Make sure you understand how carrier limitations and geographic volume/service trends affect your unique shipments.
  • Coming April 11, UPS changes to zonal pricing for its Additional Handling and Large Package Surcharges.

International Forecast: Record Rates, Equipment Sparse

  • International shipping demand is unseasonably high.
  • Capacity is committed for much of Q1, especially up to and through the Chinese New Year.
  • Equipment availability is sparse in most Asian markets.
  • Expect rates to remain at record levels, even after the Chinese New Year allows the industry a chance to catch up, before looking at any stabilization.
  • New federal administration might eventually bring trade compliance changes, but too early to tell how China 301 will be affected.
  • Port and rail congestion are causing ripples in cost and service across domestic transportation modes.
  • E-commerce demand and vaccine distribution will continue to drive capacity challenges far into 2021.

Indirect Spend Forecast: Packaging Costs Increasing

  • Resin prices continue to push up with major manufacturers Dow, Chevron and Exxon Mobil announcing additional increases in January 2021. Combined with the mid-year 2020 increases, costs of poly-based packaging products are up 20-25%.
  • Linerboard manufacturers pushed through a paper increase of $50 per ton in late November, driving up corrugate prices.
  • The ISM Report on Business closed December at its highest reading for manufacturers in 2.5 years, with a reading of 60.7%. The New Orders Index and Production Index was above 60% for the sixth straight month.

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