Learn strategies for maintaining access to needed resource capacity and see what is forecasted for Parcel, Truckload, LTL and International transportation

Transportation Rates Forecast: Q2 2021

Get the full picture of parcel peak-season, LTL capacity constraints and record truckload rates with our Transportation Rates Forecast Q2 2021

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.

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 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.

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.

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: 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 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.

Navigating Small Parcel Rates and Capacity ‘Perfect Storm’ in 2021

The first quarter of 2021 promises to bring much of the same volatility and uncertainty to the small parcel rates and capacity environment . With the holiday season behind us, many service providers are now fully entrenched in a worldwide vaccine distribution effort in a shipping environment that was already more expensive and capacity constrained than it was a year ago.

Here’s what all shippers should know as we move out of the small parcel rates chaos of 2020 and into a New Year that promises even more challenges – and opportunities!

Small Parcel Capacity Lessons Learned from the Holiday Season

The 2020 holiday season was like no other. Record volumes of e-commerce orders  pushed major small parcel carriers to levy new fees while also capping volumes in order to balance their networks. Affecting ground, express, and postal service, very few shippers escaped the impact.

“As Americans increasingly shop online because of the coronavirus pandemic, private express carriers FedEx and UPS have cut off new deliveries for some retailers, sending massive volumes of packages ordered past deadlines to the Postal Service,” the Washington Post reported.

With capacity at a premium in the small package environment, shippers were left to their own devices when it came to getting their goods out the door and monitoring the cost and service impacts. We were called upon to help many companies as carriers took a brutally honest approach and let everyone know that they were buckling under the strain.

We’re really gridlocked all over the place ,” a Postal Service manager told the Washington Post. “It’s bad. I’ve never seen it like this before.”

Navigating the Perfect Small Parcel Storm

With carriers implementing caps in order to avoid being overwhelmed (or completely collapsing) and volume congestion riddling networks nationwide, shippers had to swallow a bitter pill: meeting consumer expectations for next-day or two-day service wasn’t happening. Shippers with contingency plans in place going into the holidays fared best as elections and vaccine distributions claimed an extraordinary amount of parcel and mail shipping capacity during the fourth quarter of 2020.

As with any crisis, there are always lessons to be learned. If 2020 taught shippers anything, it’s that it pays to listen to your small parcel carriers. Pay attention to their market moves and announcements. Then factor those insights into your overall transportation planning. We saw a similar uptick in awareness levels in 1997, when a 13-day UPS employee strike crippled the nation’s parcel network.

Fast-forward 23 years and COVID-19 had a similar impact – albeit more sweeping and longer in duration – on an industry that now includes multiple parcel carrier options. This time around, we saw that companies capable of distributing their shipping volume across FedEx, UPS, DHL, the USPS, and other providers (versus relying on just one) fared best during the 2020 holiday season.

Moving forward, smart shippers will continue to integrate flexible tactics into their supply chain planning, knowing that a “squeeze” on one end of that value chain will equate to a diversion at the other end of that sequence. This is where regional carriers and last-mile delivery services are helping to pick up the slack and, as a result, are now being taken more seriously than ever before. We expect this trend to continue in 2021 as companies shore up their transportation plans and work to avoid the challenges of 2020.

Small Parcel Rates: Network Visibility is the Key

Even with the vaccine distribution, COVID, and other outside forces impacting the small parcel landscape right now, we do expect a competitive, more rational, parcel shipping landscape to emerge later this year.

Small Parcel Rate Guide - Insight Fusion

We could see a retreat in surcharges and other extra fees, but only when volume begins to wane and the environment starts to normalize. We also expect more competitors to enter the parcel marketplace and grab some of the opportunities that the larger carriers are overlooking right now. As this takes place, shippers should get some benefit from the heightened competition.

Regardless of the current small parcel shipping environment and the challenges that it’s inflicting on shippers and end customers, supply chain visibility continues to rise to the top as the ultimate combat tool. In an environment where next-day and two-day deliveries are the norm – and where these options are getting more expensive – the company that understands its total shipping costs is the one that will be best equipped to offset the “perfect storm” of capacity constraints, rising rates, and surcharges.

A critical tool for any market conditions, supply chain visibility includes all aspects of your transportation network—from the time the goods leave the loading dock until they reach their final destination, and all points in between. “The COVID-19 pandemic has moved supply chain and logistics technologies to the public eye like few times before,” Crunchbase states, “as shortages at grocery stores and the distribution of a possible vaccine highlight the importance of moving goods and essentials.”

End-to-end supply chain visibility also helps companies pinpoint areas of concern (i.e., is fulfillment causing the delay?), and address them quickly. It also gives shippers accurate insights into carrier performance and enables good decision-making on that front. Transportation Insight, for example, breaks down the data by geographic region and individual carrier to come up with the best possible options for shippers.

In other words, we’re not just throwing small parcel rates and other information over the fence to our customers. We take a highly consultative approach that helps companies shape successful supply chain strategies in any market conditions. As we move further into 2021, expect new parcel shipping opportunities and challenges to emerge. Those companies that align themselves with a knowledgeable, tech-enabled logistics partner will be best positioned to leverage these opportunities and circumvent the challenges.

Tap into our team’s insight to support your freight and parcel management practices. Download our Q1 ChainLink 2021 for multi-modal trend forecasts and cost impact analysis. Read it today  for supply chain strategy guidance, as well as the latest changes in small parcel rates and other transportation modes.

For more detail, listen to our SME Roundtable discuss transportation trends in our latest digital event.

Strategic Supply Chain Planning 2021 | Beyond COVID

Companies are looking at diversifying their supply sources. Whether this means on-shoring, near-shoring or simply adding alternative regions to the existing base. This is not a quick proposition. Suppliers have to be located, certified and tested. Order patterns have to be established and inventory policies implemented. All of this takes data, analysts and time. Perhaps the most difficult part, managing change in your supply chain planning.

Whether you are a manufacturer, distributor or retailer you have to be able to support more direct consumer channels than you may have traditionally. This will involve better collaboration, inventory management and alternative fulfillment and transportation options. Again, this requires data, analysts and change management.

The companies that will lead the pack are the ones that recognize the permanency of the COVID changes on the horizon and establish long-term supply chain strategies to mitigate risk and guarantee products and service to the end customer.

Planning for Supply Chain Flex is Paramount

An exponential boom in e-commerce sales rapidly created significant congestion for last mile deliveries. The effect spilled across the entire supply chain. At distribution and fulfillment centers some shippers saw their small packages go unshipped due to volume caps implemented by parcel carriers. Elsewhere, LTL carriers facing heightened shipment volumes at their terminals delivered fluctuating service levels.

As a result, many companies examined how they complete final deliveries to their clients, a process that retail giants like Amazon have nearly mastered. More and more companies are shifting toward expedited service from either existing brick-and-mortar facilities or an adjusted network of distribution centers. Smaller, urban fulfillment centers added in certain areas can help skirt site-specific volume limits. More options make you less susceptible to geography-based capacity constraints.

But you must understand how those changes in network design affect cost and service performance. 

Through its ability to evolve a massive local network, Amazon proved to be among the most reliable carriers during the disruptions of 2020. Not everyone has the deep pockets to establish an Amazon-like network with large distribution centers and cross-dock strategies. 

However, you can determine where you can compete with that sprawling service network – and where you cannot. SKU rationalization, margin analysis of different channels and overall network design analysis can help businesses of any size understand where growth is occurring and where it is not. From there you can align your supply chain planning based on the demand patterns your business is experiencing.

Look Upstream to Determine Opportunity

With everything happening in the supply chain environment, it is important to get outside of your business and examine your network upstream to your suppliers. This provides insight in several important areas. 

Over the past 20 years companies have worked to reduce and remove inventory where possible, achieving the absolute least cost in the process. Today, you must balance inventory, determine which inventory is right, and even decide the right customers to serve. Understanding your processes, as well as those of your partners is integral to transportation cost management.

When your retail partner asks you to drop ship product to their customers, can you segment your inventory into the different physical channels to both serve those individual orders and continue filling regular store-level inventory needs?

How should your inventory model change as you move toward insourcing or reshoring? With longer lead times and growing landed costs emerging from foreign vendors, local suppliers allow you to manage a smaller inventory or direct ship to customers and, ultimately lower overall cost. Do you have the contingencies in place across your network of vendor partners to deploy local or regional sourcing in the event of ongoing disruption in Asia?

By stepping outside your own walls and understanding processes upstream and downstream – as well as their alternatives – you become a stronger partner, especially if you can offer your suppliers visibility into your own demand. Ultimately, that level of collaboration helps your partners plan better, improving efficiency and service to you in the process.

By helping customers understand their total value stream and deploying a lean-minded supply chain strategy consultation, we help them visualize how changes to their network can improve cost and service across their transportation environment.

Capacity for Change can Limit Improvement

Achieving flexibility in your supply chain requires both an ability to recognize when processes are not performing and a willingness to apply change. If you don’t change, nothing changes, and it became especially clear in 2020 that a lot of companies don’t know how to implement that change. 

Leadership has to want to change and improve, and it is important to understand that if you are not constantly problem-solving then you are going backwards. Smaller companies understand this especially well, but larger companies are often separated into silos and metrics conflict with day-to-day activity.

Are you willing to let your partners save you from yourself? If leadership is not willing to accept analysis and insight that supports change, then activity rarely changes until crisis occurs. And when that crisis occurs, without analysis to support process improvement, you may not be able to determine the right practices to change.

Performing that analysis is no easy task. A lot of smaller companies don’t have the skillsets or capacity to complete that data-driven look. Likewise, medium and large companies may dedicate people to monitor performance in different supply chain areas. They may not have the groups of people capable of not only understanding how to complete the analysis, but also problem solve. 

That is where Transportation Insight helps. We not only have the capacity to complete analysis of SKU-level performance, network design and alternative, contingency supply chain strategies. Importantly, we also teach your teams how problem solve, a skill that you can then pass along to others in the organization.   

Once we deploy a problem-solving mindset alongside analysis of your supply chain data, we can create a map of the transportation activities across your network and determine options for alleviating problem points that drive up your cost. By pairing those continuous improvement efforts with renewed network flexibility that eliminates the risk of disruption, Transportation Insight positions you for improved cost control and enhanced opportunities for growth. 

For more insight that will help support your supply chain strategy in 2021, download our latest industry forecast. Read the First Quarter ChainLink 2021 for a multi-modal look at the transportation trends that will affect your business in the year ahead.

International Shipping Rates Challenge: New Year, Same Capacity Challenges

In the international shipping marketplace, that translates to equipment availability issues, ongoing capacity pressure and motivation for the major shipping alliances to maintain record-high rates.

Although the Chinese New Year February 11-26 offers promise of a breather for vessel, port and intermodal operations, events of 2020 created enough congestion and imbalance that volatility will continue to affect supply chains reliant on international transportation.

Let’s explore factors that will affect price, capacity and service in the first half of 2021 and continue to contribute to international shipping rates challenges.

No International Shipping Relief in Sight

Signs of a unique year are already emerging. Capacity demands are at levels unlike we’ve ever experienced for this season. Bookings are at capacity through January and into February.

As a result, international shipping rates are not going down any time soon. Since the 3 major shipping alliances control about 85 percent of international shipping capacity, operators leverage their power more than in the past. A General Rate Increase has not been announced since September, but we are not seeing the typical drop in costs that normally accompanies a loosening of capacity that follows peak season. That will keep rates elevated.

Additional loaders are being deployed to keep up with demand. Some of those come online to send empty containers back to Asia. There, ports wait for a hundreds of thousands of containers to move slowly back into the flow from the congested U.S. West Coast.

Optimism is high that the Chinese New Year will afford two weeks of breathing room for the international shipping industry to catch up. Unfortunately, 16 days will not likely be enough time to alleviate several months’ worth of challenges that continue to affect services and cost across your end-to-end network.

Ripples Across Transportation Spend Clogs International and Domestic Supply Chain

The ripple of demand, capacity and equipment availability is felt across all transportation modes. Congestion on the rail stalls movement of freight. Full inbound containers detained by the rail are being stored off-site, requiring additional moves. When there is disruption to intermodal, expect it to occur across truckload and LTL and pressure cost management and service times as a result.

In this environment, global distribution of COVID-19 vaccine creates additional demand spikes, especially for the Air Freight mode that will fill a key role in the transportation of temperature sensitive materials. Likewise, expect to see impact across other domestic modes as medical supplies are prioritized, and, in the process, pushing transportation pricing up and capacity down.

On the trade compliance front, a new administration in Washington, D.C., has promised to bring regulation changes that will likely develop more slowly. Efforts to rollback tariffs, like China 301, get a lot of attention, and while the policy changes of a new president may not move quickly, expect some ripple in the complex rules for importing and exporting goods into the United States.

Consumer Behaviors Drive “Forever Peak” with Overseas Shipping

Problems challenging the international supply chain emanate from ongoing shifts in consumer behavior. E-commerce continues to fill buying voids left open by vacations and visits to the mall. Disposable income drives the online purchase of goods and the volume of consumable goods moving through transportation networks is creating an extended peak season across all modes.

Buyers are quickly becoming accustomed to the immediate purchase satisfaction that comes from an online order, and that is not ever going to revert. Raw material, component and finished good sourcing strategies as well as inventory management practices become increasingly complicated when buyers know they can take their cart elsewhere if you do not have the desired quantity available to fill their online order.

To make sure you protect that experience and secure every sale, it is critical to understand how every piece of the end-to-end supply chain puzzle – from foreign production site and overseas shipping, to trade compliance, domestic transportation and last mile delivery – fits together into a total landed cost of goods.

An expert partner can help you assemble the big picture perspective so you can control your international and domestic spend and turn your focus toward achieving strategic goals for your business.

For more insight on multi-modal transportation trends that will affect your cost and service in 2021, download our Q1 Industry Forecast. It features a look at things to come for shippers relying on Truckload, LTL and Parcel transportation, as well as our international transportation forecasts.

Transportation Costs in 2021: Less-Than-Truckload

Carriers are reacting to market changes in other ways beyond transportation costs, as well. One example: early in 2020, one national carrier indicated it would match any volume LTL quote from another carrier. Six weeks later, that carrier wasn’t accepting any volume shipments due to the dramatic shift in the market.

Carriers also have grown more comfortable implementing LTL surcharges that further drive up transportation costs. Some are turning away freight that is more difficult to handle.

The LTL transactional market is seeing tight capacity and generally widespread delays, including with premium carriers. Driving this is a 10-12 percent growth in demand, several times the typical range. 

Capacity constraints in the LTL markets may seem out of step with some of the economic news, which continues to reflect the pandemic toll on many businesses. The September 2020 unemployment rate (7.9 percent) was more than double the rate a year earlier. And while the gross domestic product jumped by $1.64 trillion in the third quarter of 2020, that followed a drop of $2.04 trillion in the second quarter.

One reason for the disconnect is the drop in the consumption of services, which dwarfs the drop in the consumption of goods. Between the first and second quarters, consumption of services dropped 13.3 percent, according to the American Trucking Association. The consumption of goods dropped by a more modest 2.8 percent, also according to the ATA. 

Looking at LTL Transportation in 2021

Even as the economy slowly recovers, demand for goods likely will outpace demand for services, the ATA predicts. Until a vaccine has been broadly distributed and COVID cases drop drastically, consumers appear comfortable continuing to spend more time at home. As they do, newly formed online shopping habits probably will continue. Online purchases of furniture and appliances, apparel, and groceries, among other items, are likely to remain at least 10 percent higher post-pandemic, consulting firm McKinsey found. 

This shift is contributing to expected ongoing capacity tightness. In turn, that likely will contribute to a favorable carrier’s market next year. The rate increases some carriers are imposing in high-capacity lanes likely will continue into 2021, until capacity corrects itself.

The level of those rate increase can vary. LTL carriers develop market-specific rate bases so the impact of increases passed along in 2021 can be influenced by carriers’ operating needs and your shipping characteristics. 

Carrier mergers also appear poised to continue. Most take one of several approaches. Some companies join forces to pool resources and become more efficient. Others bring together companies in different sectors, allowing all to expand their range of services.

Shippers of bulky, low-density, non-dock-to-dock freight, along with shippers of over-dimensional freight that parcel carriers are trying to price out of the parcel network, may face additional obstacles. Some LTL carriers are trying to push these freight types to the truckload market and are raising rates accordingly. 

Surcharges appear likely to remain and even increase. If some states, as predicted, add taxes, other LTL surcharges may appear. 

Prior to the pandemic, some LTL carriers began investing in box trucks so they could more easily handle residential e-commerce deliveries. These efforts have slowed during the pandemic and capacity crunch. However, once demand and capacity rebalance, expect to see LTL carriers make another move into this market. 

Managing Transportation Costs Through Capacity Constraints

While shifting from one carrier to another might seem like a way to improve service and transportation cost, jumping may not help. In fact, it’s possible service will further decline. 

Several other steps tend to be more effective. One is to take a longer-term perspective, work with a carrier, and establish a partnership that benefits all involved. Another is to build lead time into processes and set realistic expectations with end customers. 

For more insight on the motor freight environment we expect to emerge in 2021, watch our webinar focused on Brokerage and Capacity Planning 2021. We take a deeper dive into the outlook for LTL, Truckload and International transportation in our Freight Rate Outlook 2021. Read it today for multi-modal rate forecasts and analysis from our Supply Chain Masters.

Fulfillment Strategies: Is Your 2021 E-Commerce Plan in Place?

Fulfillment Strategies: Is Your 2021 E-Commerce Plan in Place?

This is important for many reasons, not the least of which is the big uptick in e-commerce that’s occurring in 2020, and that will likely continue well into 2021. Already increasing year-over-year, U.S. e-commerce sales were up 43% in September 2020, having grown by 42% the prior month. This growth impacted manufacturers, distributors, and retailers, many of which were unprepared for the onslaught. 

If you spent most of 2020 just trying to get through the pandemic, it’s time to dust off your supply chain, logistics and transportation plans and make sure your fulfillment strategies align with your 2021 e-commerce goals.

Changing Business Models 

As a whole, the pandemic was a wakeup call for these companies that were forced to question some of their fundamental assumptions. 2021 could bring an entirely new set of supply chain, logistics, and transportation challenges with it. 

“As many executives heave a sigh of relief, they are also preparing for a dramatically different environment in 2021,” Industry Week points out. 

“Recent economic challenges have forced manufacturers to change their business models, seemingly overnight, to stay competitive and prepare for not just recovery, but unprecedented growth,” it continues. “However, it may be difficult for manufacturers to keep up with both a snap-back in demand and a huge appetite from customers for innovative products and solutions.”

Navigating the New Fulfillment Normal

Under normal circumstances, companies can add labor and shifts to make up for throughput problems in their warehouses and DCs. With social distancing guidelines in place and the need to keep employees healthy a huge issue for companies right now, simply throwing labor at the problem doesn’t work anymore. 

These realities directly impact customer service which, in turn, affects margins and revenues. When customers feel like they’re being kept in the dark or that they’re not in control of the ordering and shipping process, they’ll take their business elsewhere. 

Here are six more strategies that all companies should include in their 2021 plans: 

  • Get your parcel shipping act together. In a world where nearly all customers expect their goods in three days or less, and where 30 percent of them expect them next day, you can’t reduce shipping costs at your customers’ expense. With this emphasis on delivery expectations, companies have to create parcel strategies that acknowledge the fact that shipping is the highest cost component of any e-commerce order.   
  • Watch your accessorials and peak surcharges. With the parcel carriers continuing to roll out increasingly-complex pricing strategies and inflating rates due to the lack of competition, shippers also have to keep a close eye on accessorials and peak surcharges at the package level. Understand how it’s impacting your costs and how to adjust and adapt moving forward into 2021. If SKU-level profitability is an important KPI, for example, then add that to list of metrics to measure. 
  • Consider a multi-carrier solution. There’s a lot of good value to be had by working with regional carriers and freight consolidators. Varying your approach also helps support customers’ delivery expectations. Amazon, for example, has worked hard to ensure high levels of visibility that starts when an order is placed and that doesn’t end until the package is on the buyer’s doorstep. With more of these customers having same-day and next-day delivery expectations, the multi-carrier approach can help support your overall fulfillment strategy and even make it more affordable. 

  • Rethink your fulfillment approach. To meet your customers’ fulfillment needs, you can either offer a higher shipper service level or you can change how your product is fulfilled and positioned (i.e., either with a bicoastal or multiple fulfillment level location plan). Whether you’re fulfilling it yourself, using a third-party logistics provider (3PL), or a hybrid approach, the key is to look to 2021 and beyond when setting up these networks. 
  • Use advanced technology tools. To get a head start on 2021, companies can tap into the tools that help automate, personalize, and engage virtual transactions, and that fuel their e-fulfillment engines. Cart integration, for example, automatically answers buyer questions like: How much is it going to cost? What are my shipping options? And, is there an opportunity for me to pick it up in-store? Through that integration and automation, the customer gets the choice and the control that they’re looking for today.
  • Focus on more than just the sales process. Companies should also consider post-purchase experience and post-purchase engagement tools, both of which automate the customer buying journey. These data-centric tools also lighten the workload for your customer service team. Finally, having shipping analytics right down to the individual order level puts the power of business intelligence (BI) into the shipper’s hands, and allows it to make good decisions based on accurate, relevant information (versus just guesswork).  

While it’s easy to get mired in the complications of 2020 right now, you’ll be much better prepared if you break the mold and start planning for the future today. That way, you’ll be in the right position and ready to pivot—in whichever direction is necessary—when 2021 comes. 

Freight Rates: 2021 Truckload Outlook

Even within the past six months, many rates have spiked. For instance, in May, national dry van rates averaged $1.60. By October, they had shot up to $2.42 – a jump of more than 50 percent in five months. Similarly, flatbed rates rose from an average of $1.90 in May to $2.46 by October. So, while many rates appear to be holding steady, they’re doing so at high levels. 

In addition, aside from a potential increase in demand for vans leading into the holidays, the typical seasonality in demand and rates appears to have taken a hiatus. Instead, pockets of higher demand are driving rates even higher in some areas, such as the Pacific Northwest and southern California. 

Demand for flatbed trucks remains strong across the country. Demand for refrigerated truckloads is loosening but remains high in the Pacific Northwest and the Midwest. 

Driving the Market

One reason for the rate increases is a drop in capacity. While overall shipping tonnage is down, the number of available drivers is as well. Many smaller trucking shops may have left the market, driven out by a challenging mix of COVID-19 and rising insurance premiums, some resulting from high jury verdicts awarded in the aftermath of accidents. And mid-sized carriers have been reluctant to add equipment and drivers in this turbulent time.

In some cases, drivers face prohibitions stemming from violations logged in the Federal Motor Carrier Safety Administration’s (FMCSA) Drug and Alcohol Clearinghouse. While the shipping and carrier community support safety in trucking, this does represent a significant decrease in available drivers. According to the American Trucking Associations (ATA) as of Oct. 1, As of Oct. 1, more than 34,000 drivers were prohibited from getting back on the road because they had registered a violation. Of those, close to 27,000 had not started the process required before returning to their jobs. 

In total, about 74,000 transportation industry jobs have been lost or furloughed, or about 5 percent of the base, between late 2019 and late 2020.

Moving Into 2021

It might appear that the rise in Class 8 truck sales would offset the drop in drivers. According to J.D. Power’s October 2020 Commercial Truck Guidelines Industry Review, sales of the three most common sleeper tractors – those three to seven years old – has been generally rising throughout 2020, and then spiked in July. However, new truck sales equipment may not be available until mid- to late-2021. Moreover, many of these sales are for replacement equipment, rather than expansion. As a result, they are unlikely to add significantly to capacity. 

The conclusion of the presidential and other elections, assuming they occur in a relatively straightforward manner, may spark consumer confidence. In turn, that might drive shipping volumes – a generally positive outcome, but one that may further constrain capacity.

The disruption in the small package market may mean some of those shipments move to the LTL market, and a percentage of those then head to the truckload market. Similarly, ongoing challenges and chaos in the international and intermodal market may lead to more shipments moving to truckload. All of these will, of course, further constrain capacity.

In light of the factors affecting the truckload market, Transportation Insight (TI) forecasts rate increases of 3-5 percent for our clients that contract with carriers. Rate increases in the spot market likely will be 5-7 percent. 

In working on behalf of our clients to negotiate rates, we take a lane-by-lane and market-by-market approach. This targets those carriers whose rates appear out of alignment with the market, focused on our goal of leveraging relationships to help bring them into alignment. Shippers gain some protection from the overall increases that might not be available without those relationships.

More Truckload Change Coming

A couple of changes in the truckload sector may have a positive impact on shipments. One is the shift from some national carriers growing their regional presence to rejuvenating their long-haul network. Regional focus is an attempt to entice drivers with more time at home, but with specific market disruptions caused by COVID-19, some carriers are looking to diversify their lane mix. The flipside: this could pull additional congestion off the rail to feed these long haul fleets and add pressure to over-the-road capacity.

Another shift is the increasing use of data, such as score-carding and monitoring, by both carriers and shippers. Early in this shift to monitoring and managing, some carriers worried that data would replace the relationships they cultivated with their customers. 

The opposite appears to be occurring. The data tends to allow for more dialogue and planning, helping to strengthen relationships. In addition, it allows quality carriers to quantitatively demonstrate they can provide the reliability and service shippers require. 

Navigating a Changed Market

In the current truckload market, shippers that have taken steps to become shippers of choice tend to benefit with greater commitment by the carriers with whom they partner. This can mean, for instance, shippers provide longer lead-times and some flexibility on pickup times. Both enable carriers to schedule their routes more efficiently.

It also helps to keep in mind that the rate increases happening now will not last forever. The truckload market tends to self-correct; as rates increase, more drivers enter the field and supply and demand start to balance out. In the meantime, however, it helps to expect some volatility to continue. 

To help you navigate that volatility across all transportation modes in your supply chain, we created the Rate Outlook 2021. It provides a forecast for transportation rates in Parcel, LTL and International, as well as truckload. Read it today for information that will help you mitigate risk and control cost across your network. Watch the webinar with our freight rate experts for more guidance on brokerage and carrier capacity planning in 2021.

E-Commerce Logistics Demands, COVID-19 Empower Ocean Alliances

Although there is still a slim chance that the fourth quarter produces some rate compression – or a downturn in the need for e-commerce logistics. When freight levels are at an all-time high, there is little motivation for the three major shipping alliances to drop rates significantly during the remaining calendar year.

Shippers looking to 2021 would be wise to consider contingency budgeting – especially if you are a major importer competing in a supply chain environment that continues to be affected by ongoing growth in online sales and e-commerce logistics.

Likewise, there has never been a more important time to reassess your entire import supply chain to validate compliance with evolving trade regulations. Emerging pinch points in the international supply chain are elevating risk for shippers who must be prepared to address traditional risk areas that carry a financial impact.

As we have stated since early 2019, contingency planning must be the part of your monthly and sometimes weekly business plans. Diversification in foreign sourcing has never been more critical, particularly in an election season that has pushed global trade forward as individual candidates differentiating issue.  

Close review of the international transportation landscape can lay the groundwork for developing strategies that mitigate that risk heading into 2021.

Alliances Take Control Amid E-Commerce Boom

Consumer behaviors are shifting the traditional retail models, and the unchecked growth of e-commerce is keeping the global supply chain packed with product. 

Credit some of that international freight volume to the rapid production and movement of Personal Protective Equipment (PPE) in response to a global health crisis. At the same time, retail supply chains have been irreversibly impacted by the functional success of e-commerce. Until some of the demand cycles in both realms stabilize, predicting ocean shipping rates will be a challenge.

More importantly, the three major shipping alliances response to COVID-19 demands the attention of organizations that rely on global commerce and e-commerce logistics. Vessel operators have shown remarkable discipline by matching supply to demand volatility.

During the first half of the year, the three alliances (2M, Ocean Alliance and THE Alliance) constricted supply by canceling dozens of scheduled voyages with the intent to remove excess capacity. However the net effect was scarcity of space, i.e. rates were increased monthly or bi-weekly and started to build. Representing 21 ocean vessel operators and roughly 10 million 20-foot equivalent units (TEU), these alliances have maintained rate discipline as the retail supply chain began to open in July in August. 

In the past, increased demand for service and the prospect of rate increase motivated operators to add sailings. With a strategic approach that ensures vessels are filled before others are added, ocean carriers keep upward pressure on rates that are roughly 80 percent higher in a year-over-year comparison to 2019.

This strategy supports a more dependable service for international shippers as it creates more reliability for in-country logistics operators, but if the alliances maintain this discipline, plan for rates to stay elevated. Solid bookings will continue through October and contingency budgeting should be a focus for major importers.

Persisting Pinch Points Create Risk

As we approach what has traditionally been a calm period at the end of the e-commerce logistics peak season, the ports of Long Beach and Los Angeles are at capacity. Historically higher volume for this time of year will undoubtedly spur downstream challenges deep into Q4 and into 2021. 

Finding available chasses to support container movements will continue to be a problem into December. As these containers and chasses (to a lesser degree) move in country and on the rail, it is hard to balance the need for equipment during a disruption-filled year like we’ve had. Vessels hoping to expedite movement for the last wave of peak season freight to North America are now waiting for containers to come back to port so that have something to load and ship. 

We know there will be an end to this kind of imbalance, but we have not gotten there yet.

The timing has never been greater for organizations to assess their entire import and export supply chain. Look for places to increase efficiency. Identify pinch points that elevate risk that emerges in times of global volatility. At this point, organizations should have complete awareness of the supply chain challenges arising during COVID-19 and address their preparedness for the next global disruption, both economically and around traditional risk areas. 

Trade Regulations and Tariff Battles Require Eye on Compliance

Plaintiffs representing a diverse set of industries are suing the U.S. Trade Representative (USTR) for relief from China 301 tariffs. The argument: tariffs implemented without sufficient advanced notice caused unfair and improper financial harm to their organizations. Many shippers have been negatively impacted, some to a crippling point, and they are looking for any dollars they can get.

These organizations – including some of the world’s largest brands – will not likely get complete relief, but their actions demonstrate that businesses will not sit idle when trade laws are put in place, as they argue, without warning.

Meanwhile, implementation of the trade regulations intended to replace the North American Free Trade Agreement continues to carry some unexpected consequences.

The U.S.-Mexico-Canada Agreement (USMCA) is having the largest effect on businesses close to the automotive supply chain, but many companies were lulled into thinking there would be limited changes in the new agreement. Updated documentation is required to execute cross border entries. Make sure to review your international trade compliance processes to avoid this type of needless risk caused by what seems like a simple change in regulations. 

Q4 Forecast: Parcel Rates and Cost Impact

Not long ago parcel carriers were transporting 20-25 percent of their deliveries to residential addresses. By 2019, that number increased to about 50 percent. This year, 70 percent of all parcel carrier movements involve a residential address. The shift is largely driven by a consumer who is shopping from home either by choice, necessity or both. 

According to the Department of Commerce, U.S. retail e-commerce sales for the second quarter of 2020 were $211.5 billion, an increase of 31.8 percent over the first quarter of the year. During the second quarter of 2019, e-commerce sales increased just 12 percent over the same period in 2018. 

These are some telling numbers, and they paint a picture of a shifting consumer purchasing environment that’s pulling the major parcel carriers right along with it. For example, UPS saw its residential delivery volume increase 65 percent during the second quarter. This is just one of several carriers being asked to absorb and handle volume increases unlike anything their networks have ever experienced.

Here’s what shippers can expect on the parcel shipping front as 2020 winds down and the holiday season kicks into full speed.

2021 Parcel Rates: FedEx

FedEx Express (Domestic, U.S. Export and U.S. Import), FedEx Ground, and FedEx Home Delivery shipping rates will increase by an average of 4.9 percent. FedEx has increased these rates 4.9 percent every year since 2007. FedEx Freight will increase rates by an average of 5.9 percent. 

These are a sampling of the changes becoming effective Jan. 4, 2021:

  • Institute a 6 percent late fee to U.S. FedEx Express and FedEx Ground customers who don’t pay their invoice within their agreed upon payment terms. UPS implemented this fee in 2003.
  • New $16 Additional Handling Fee for packages where dimensions are greater than 105 inches in combined length plus girth. 
  • Additional handling charge for weight increased 6.25 percent to $25.50.
  • Additional handling charge for packaging increase 7.7 percent to $14.
  • DAS for Home Delivery is 7.5 percent from $4 to $4.30.
  • Oversize charge for Home Delivery has increased 8.3 percent from $120 to $130.
  • Residential Delivery charge for Home Delivery charge increased 8.75 percent from $4 to $4.35.
  • The ground minimum package charge (zone 2, 1 pound list rate) has increased by 6.44 percent to $8.76.
  • 2Day and Express Saver (3 day) shipments will take larger increases.
  • Longer zones have larger increases than shorter zones for Express services.
  • Surcharges have increased by more than the announced 4.9 percent for the ones most commonly applied.

Even though the GRI is 4.9 percent your true rate increase will be somewhere between 4.9 percent and 8 percent depending on usage of these additional services. This is the type of analysis Transportation Insight provides to our clients. Every year a GRI report is generated for our clients to aid in understanding the impact these rates will have on their transportation spend.

When Peak Season Lasts All Year

Carriers typically experience peak season about six weeks a year. Because of COVID-19 carriers have been running at peak season pace for several months straight. There’s never been this level of capacity utilization in the small package network, and it’s clear that carriers weren’t ready for it. As a result, the massive increase created management difficulties for the carriers which, in turn, implemented COVID-19 surcharges that create new cost management challenges for shippers

These charges went into effect in the U.S. during the first quarter of the year, with UPS and FedEx creating a peak season operating plan for spring and summer (to handle the demand of home delivery while simultaneously experiencing the collapse of their commercial delivery volume). This created major problems: commercial deliveries are traditionally carriers’ most profitable and have been reduced to a fraction of their “normal” levels. 

Tracking the cost impact of these surcharges isn’t always straightforward. UPS created a $0.30 charge for residential and SurePost packages while also raising by $31.45 a surcharge on difficult-to-handle parcels (e.g., extra-large boxes). FedEx imposed its own surcharges on large shippers and added a $0.30 charge for express and ground residential deliveries, and a $0.40 addition for SmartPost deliveries.  

Navigating the New Gauntlet

With COVID still impacting the shipping environment, carriers rolled out holiday peak season surcharges. For 2020, these charges will be broad-based and targeted at the shippers that more significantly impact the parcel carriers’ networks. 

Charges for UPS will range from $1, $2, and $3 for ground residential and SurePost packages. These charges will begin Nov. 15 and continue through Jan. 16, 2021. UPS is also tacking on an additional handling charge of $5 per package, a large package surcharge of $50, and an over-max-limit of $250. These charges will be in effect through Jan. 16. 

FedEx began its holiday peak season surcharges of $4.90 on Oct. 5 for packages needing additional handling. Oversized package incur a $52.50 surcharge and unauthorized packages cost an additional $350. These rates will be in effect until Jan. 17. In addition, FedEx’s residential ground packages incur surcharges capped at $4 per package, while residential express shipment surcharges are $5. The latter charges are both based on specific formulas. 

The U.S. Postal Service (USPS) will implement its own peak season surcharges beginning Oct. 18 and running through Dec. 27. The fees still need to receive regulatory approval, but we expect them to be passed. The USPS fees will be applied per package and will pertain to all commercial shippers.  

Maintaining Profitability

For the first time, we’re also seeing small package regional carriers implementing surcharges. Because these fees are based on formulas and difficult to compute, planning for, managing, reporting and auditing the surcharges is difficult. Unfortunately, the combination of COVID-19 and an e-commerce boom overturned the parcel industry’s apple cart, and the change will be forever felt as parcel shippers navigate this new gauntlet.

For most companies, speed is the most important supply chain deliverable. They’re looking to move volume to the end consumer to achieve speed at an acceptable price point. We’re also seeing many companies: 

  • Exploring opportunities for faster growth or service into specific markets.
  • Going direct to consumers
  • Pivoting to maintain Amazon Prime designations by complying with requirements taking effect in February.

Managing these complexities on your own has become a major headache for parcel shippers – especially when logistics management isn’t your core business. Not prepared to make long-term commitments in technology, infrastructure, and employees, more companies are turning to third-party logistics providers (3PLs) to move quickly and affordably in this customer-centric business world. 

Third-party fulfillment allows companies to ramp up quickly to meet demand. It also creates a more elastic fulfillment environment that can be scaled up or down, depending on the volume of freight that’s moving through the operation. A 3PL will also help you lay out a master plan in advance, and then adjust accordingly as rate hikes, surcharges, and other variables come into play.   

In light of the rising costs of parcel shipping—and the myriad surcharges that went into effect in 2020—the biggest questions that shippers are asking themselves right now are: Where should I place my inventory? And, what SKUs should I be stocking in order to meet customer demand?  The companies that find the right balance between these two points will then be the ones that maintain profitability through this uncertainty…and beyond. 

4 Tips: Improve Profitability Despite Rising Transportation Costs

Profitable shipping is a very attainable goal, even in today’s uncertain environment, where FedEx and UPS peak carrier surcharges have become a moving target for all parcel shippers. Despite these rising costs, there are ways all companies can improve shipping profitability in 2020. 

Try using these four tried-and-true tactics for improving shipping profitability in any market conditions. 

  1. Think at a Package Level
    If you’re handling multiple pick-and-pack orders, you need to know what you’re putting into different sized packages. Align that information with the actual transportation costs, and then figure out the profitability level on each. 

    This can be a complex process, but ultimately it is important to understand that the dollar amount on your transportation invoice does not tie into your product profitability. Once you determine what it costs to ship each SKU, it becomes clear that offering free shipping at a $50 order threshold, for instance, may not yield a profitable order for your company. 
  2. Use Good Margin Management
    When your marketing department launches a promotion – “Buy $50 worth of stuff and get free shipping” – make sure the “losers” do not fill-up e-commerce shopping cart and drive your cost above profit. To avoid these problems, share relevant information across your organization to keep everyone marching in the same direction. 

  1. Leverage Data 
    Look not only at carrier data, but also sales data, product costs, fulfillment costs, and other metrics that go into a single order. Transportation Insight helps shippers accumulate all of that information and consolidate it into a unified dashboard that is used to track trends, pinpoint winning/losing SKUs, and single out other areas where the company may be losing money.

  1. Partner with a Transportation Expert
    Work with a reliable logistics provider that has built out the necessary systems and that spreads the value of those systems across numerous different users. The latter allows providers to leverage economies of scale and offer their services at an affordable cost. This translates into high value for shippers in any business or economic condition. 

Protect Profit for Every Customer and Every Order

Our latest strategy guide “You Shipped It, But … Did it Make Money?” raises a question that is on the minds of many business leaders. 

Your business has responded to significant shifts in consumer buying behaviors and your customers expectations are being met. But did the transaction yield profit for the business? Or did transportation cost complexity eclipse your margin in the rush to serve?

Open our guide on margin management for more strategies that will help you master your supply chain to protect profit for every order.