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 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 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.
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 Costs 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.
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.
U.S. Department of Commerce announces e-commerce retail sales estimates for Q1 2021 on May 18.
Transportation Industry Outlook: Q1 2021
Truckload Forecast: Rate Increases Continue
- Given ongoing capacity constraints, the truckload market will see rates continue to increase for at least the first half of 2021.
- More shippers will lock in contractual 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 rate increases, 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.