Stay up-to-date on challenges that drive up your transportation costs and jeopardize your bottom line performance.
Transportation Insight’s experts in small parcel, less-than-load (LTL), truckload and international transportation share trend forecasts to support your transportation management.
Read this digest of blogs from The Expert Lens for the latest content focused on helping small and medium-sized businesses move their shipments at optimal cost and service to meet customer expectations.
Of course, this requires easily accessible visibility to all those transportation activities. It also takes a keen eye focused on opportunities to improve your current managed transportation performance – and your service to customers.
To help small and mid-sized businesses identify the best support services available in a volatile freight transportation environment, we commissioned Forrester Consulting to complete a Total Economic Impact™ study of our Managed Transportation solution.
Forrester’s analysis identified some of the benefits our managed transportation brought one customer during a three-year period:
Freight and cost mitigation savings over $1.4 million; average annual LTL savings and cost mitigation of more than 10 percent of the annual transportation budget
Personnel cost savings exceeding $840,000
Transparency into freight costs allowing stakeholders to see all transportation spending in one place
Better on-time delivery to fulfill our customer’s specific shipping requirements, control costs and protect end customer experience
Technology tools supporting needs for specific capacity and special handling situations
According to the study, “Transportation Insight Managed Transportation provides managers with transparency into their total spend and allows them to see managed transportation not as a cost center, but as a source of competitive advantage.”
Let’s unpack some of the reasons the Forrester Consulting Total Economic Impact (TEI) study determined our managed transportation solution can deliver a 251 percent return-on-investment and $1.6 million net present value over three years. For an abridged version of the case study we commissioned, open our infographic.
Source: The Total Economic Impact™ Of Transportation Insight Managed Transportation
Managed Transportation Customer Testimony
Using its TEI methodology, Forrester interviewed the senior vice president with a Transportation Insight customer that provides school supplies and educational resources to its clients. Forrester based a three-year financial analysis on this conversation.
As Forrester’s interview revealed, transportation visibility is important as our customer:
Compiles products from several inbound resources into large shipments for outbound delivery
Aligns delivery within specific schedules for on-site work crews that offload, install and remove packaging refuse
Requires specialized equipment or wide trailers and doors.
“We’re very watchful of freight costs as they continue to go through levels we never thought they would,” our managed transportation customer said according to Forrester. “… It’s always at the top of the list when we’re monitoring expenses, so it’s easy to understand the reason we need a third party to provide these services.”
Need-Focused Transportation Solution
Prior to our partnership, this organization worked with another third-party transportation service that utilized a broker model to send most freight tenders through one preferred carrier. According to our customer’s comments to Forrester, this left many decision-makers wondering whether their organization was getting the best price or quality of service.
Considering a change, the organization sought a managed transportation provider that:
Works with multiple carriers on a pure cost and quality-of-service basis
Offers technology that allows a better view into freight spend to support full understanding of the cost of goods sold (COGS)
Provides carriers capable of meeting specialized needs of its shipping and installation services
Identifies additional efficiencies to reduce transportation costs on an ongoing basis
Forrester’s TEI analyzed how Transportation Insight’s managed transportation solution has been meeting those needs for the past three years. Elements of our solution considered in the TEI include:
Named enterprise service team including single-focus account manager a customer can call any time
Consolidated electronic billing
Customer understanding and improvement of standard operating procedure for each customer
Continuous improvement projects
Network simulation and modeling
Proprietary tools including:
Insight Freight (our freight audit and payment portal)
Insight Fusion (our business intelligence portal providing business analytics and reporting for actionable insights)
Based on the customer interview and financial analysis, Forrester determined a total present value of our solution at $2.23 million over three years. Compared to a cost of $632,000 during that time, the TEI determined a $1.6 million net present value of our managed transportation solution to our client.
Source: The Total Economic Impact™ Of Transportation Insight Managed Transportation
According to the TEI’s key findings, Transportation Insight’s managed transportation solution provides quantified and unquantified benefits. Both are significant.
Our proprietary technology and processes, combined with our expertise across the less-than-load and truckload transportation environments, achieved savings on freight costs and cost mitigation of more than $1.4 million.
Using our transportation management system (TMS) bid board functionality, our customers can route shipments with the optimal, low-cost carriers that we help identify through a rating system based on their feedback. We also helped this customer achieve the best transportation costs on inbound freight shipments from its vendors.
“We put our complete confidence in Transportation Insight to manage that process and provide us good carriers at the best market prices,” said our customer’s executive, according to the Forrester study.
It can be hard to quantify the benefit of technology applications like our TMS and our business intelligence and reporting tools. Still, transparency to freight costs and the cost of goods sold, as well as on-time delivery adherence delivers benefits across an organization, often in ways that mitigate future financial impact.
That said, implementing and managing a technology-enabled freight solution does come at a cost. And creating internal workflow efficiencies with easy-to-access reporting and streamlined execution realizes hard-dollar savings.
Forrester’s TEI determined that our managed transportation solution helped our client realize a personnel savings value of $847,214 over three years. That benefit represents the cost of personnel if our customer tried to develop and maintain an in-house solution to replace all the technology services and reporting we provide.
“The information that is in (Insight) Fusion can be combined with our company information, and we can look at margin by carrier, margin by customer, and margin by lane,” our customer told Forrester according to the TEI we commissioned. “I can’t even conceive of all the ways we can slice and dice [the information].”
Quantifying Benefits Against Cost
Transportation Insight commissioned a Total Economic Impact study of our managed transportation solution to help shippers understand the cost, benefit, flexibility and any risk factors associated with this service offering.
I believe that the costs and risk factors of our managed transportation solution are far outweighed by the benefits – and we scratched the surface of those benefits above. But I also believe that shippers should have a clear view to the costs they incur when partnering for a new beneficial solution.
Transportation Insight’s fees depend on the customer, and they are often a combination of fixed transactional fees, subscription fees and/or savings share. Within the context of this managed transportation analysis, Forrester Consulting identified our fees over the past three years.
According to the TEI study, the total benefit of our managed transportation solution for this customer over three years is $2.23 million, compared to $632,000 paid in fees to Transportation Insight during that time. In this case, those fees varied from year to year based, in part, on the freight volumes our customer shipped during the period. Forrester concludes the payback period on this cost is less than six months for this client.
Source: The Total Economic Impact™ Of Transportation Insight Managed Transportation
That is an important benchmark for small- and medium-sized businesses. We know our customers often compete with larger shippers that possess the scale and capital to invest in a more complex transportation management platform. So we are focused on providing hybrid-digital solutions that make transportation control and visibility accessible to a broader market.
That is translating to managed transportation solutions that we are implementing in a matter of weeks and delivering return for our customer almost immediately thereafter. For this shipper, based on the TEI analysis, that Year 1 return was an $811,305 net value.
To learn more about the benefits and cost analysis of our managed transportation solution, download the Forrester Consulting Total Economic Impact™ of Transportation Insight Managed Transportation study.
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.
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 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.
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
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.
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.
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.
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.
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.
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.
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 manage freight and parcel 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.
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.
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.
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 stillextremely 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.
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.
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.
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 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 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.
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.
The news around climbing truckload rates is not all gloom and doom. A combination of factors across the broader domestic transportation marketplace will spur a drop in demand and relief on rates.
You can control some of those costs today by balancing procurement between spot market opportunities with short- and long-term contracts. At the same time, your strategy through the second quarter can position you for cost and service gains heading into 2022.
Let’s examine factors affecting truckload rates during the months ahead, and I will share some of the ways we help Transportation Insight clients respond in the current environment.
Truckload Demand Varies, Rates Remain High
Coming into 2021, truckload rates were at a peak. High, steady pricing will likely continue without many dips as we head through the growing season. Tighter capacity for produce and beverages coincides with increased summer highway travel, and we will see upward rate pressure until the July 4 holiday period when demand traditionally tapers off.
National average spot and contract rates through April 27, 2021. Year-to-year comparisons (2021 in red) for reefer, dry van and flatbed. Source: Morgan Stanley Research, DAT Solutions.
That demand has not really decreased since the nation started coming out of pandemic lockdowns last summer. Retailers and manufacturers rushed to restock depleted inventories, and the holiday peak season added strain on capacity not just in the truckload marketplace, but also less-than-load and parcel.
Service issues and disruptions in LTL, intermodal and parcel are pushing more freight into the over-the-road world. Shippers facing accessorials (i.e. excessive length charges) or delivery delays with LTL can find benefit in multi-stop truckload shipments. We have customers where modal conversion to rail is usually worth considering, but not in this environment. That freight, too, is also competing for truckload capacity.
Until some of the capacity challenges in other modes work out, capacity pressure will continue, likely until July, when I expect rates will recede. Even if demand declines before that, as it has recently for refrigerated and dry van transportation, do not expect costs to drop. Flatbed demand is still going strong, and while it is down for those other equipment types, prices have not yet followed.
Truckload Freight Index measuring demand for services compared to supply through April 27, 2021. Year-to-year comparisons (2021 in red) for reefer, dry van and flatbed. Source: Morgan Stanley Research.
There are a few factors keeping these truckload rates elevated.
Truckload Carrier Costs, Fuel Prices Drive Up Rate-Per-Mile
Truckload rates have not dropped for dry van and refrigerated due, in part, to the capital expenses some carriers are enduring with new equipment purchases. Insurance premiums continue to go up for operators. Driver retention and training add new costs, and we have seen some dramatic increases in driver wages announced lately.
This all creates upward rate pressure from carriers who are trying to stay profitable.
Now fuel prices are returning to the conversation after a relatively quiet past couple of years. The average price of diesel fuel climbed 34.6 percent between November 2020 and May 10, according to the Energy Information Administration (EIA). We expect prices to plateau, but look for them to increase as the summer months bring more travel for produce growers, beverage producers and North America’s vacationing public. As of May 10, EIA predicts the 2021 average will be about $2.97 per gallon – a 3-cent increase compared to the April forecast. To put that in perspective, in 2020, the average was $2.55 per gallon.
National average diesel fuel prices through May 10, 2021 and forecast through December 2021. Average retail price per gallon was $3.18, up 4 cents from May 3, but still below the March 22 peak of $3.19. Source: U.S. Energy Information Administration.
This uptick will have a cost impact, even if it may not be readily apparent. If you are in the contract-pricing world, you will generally see the added fuel charges broken out, so you can report off of it. When you are in the spot market, however, all of that is lumped into one charge. That makes it hard to specify the fuel impact on spot rates, which are climbing to a higher premium than last year.
Relief is in Sight for Shipping Costs, Truckload Rates
As I mentioned, I think the broader transportation marketplace should experience some rate relief after the July 4 holiday. My colleagues in LTL and International transportation both expect conditions to steady somewhat in their modes by then. That will alleviate some of the added capacity pressure on full truckload transportation.
New equipment and drivers coming online will help, too. We saw Class 8 truck sales increase month-over-month and building throughout the second half of last year.
Total Class 8 Net Orders, reflecting a significant upturn in late 2020 into 2021. Source: ACT, Morgan Stanley Research.
Those vehicles should start hitting the road soon – even with many of those orders being delayed up to 60 Days. Driver training programs restarted after pandemic closures will fill more seats. The current rate environment will likely draw out-of-work drivers back into the job market, as well.
All these things coinciding with a demand drop should create a dip in truckload rates. That opens the door for you to explore strategic procurement opportunities, utilizing the benefits of the spot and contract markets.
Balancing Truckload Rates with Spot and Contract Procurement
In the current rate environment, especially with spot rates at a premium, we look strategically at truckload options for our clients.
For instance, we identify freight volume that can be moved from the less predictable spot market into a short-term contract. Even while short-term rates are elevated, they are still below spot rates. There is a chance to capture savings, and, more importantly, lock in rate consistency and capacity for our customers.
It also sets the stage for you to take advantage of the downward trend coming later in the year.
I am a big believer in maintaining your carrier partnerships – and not just when the conditions are in your favor as a shipper. Now is the time to work with your carriers to try to lock in pricing and capacity. Be flexible in accepting lane-by-lane increases in the current tight market. Short-term contracts can help – and they help solidify your relationship. When demand and rates decline, you are positioned to leverage your future volume for savings.
There is a natural temptation to flip everything back into spot procurement and catch rapid savings when the truckload rate swing occurs. Instead, consider putting a lower volume in the spot market, but also prepare for a larger network RFQ to capture a long-term contract at a price point lower than the short-term contracts yielded.
We help our customers achieve consistency with their carrier partners by locking in pricing where possible now. Then, as rate pressure alleviates, we support strategic conversations with your carriers to help you get market-competitive rates while maintaining the capacity commitments that support the service levels you need.
This proactive approach empowers shippers to quickly deploy strategic adjustments and control budget impacts of a volatile rate environment. For more transportation industry analysis, download our Q2 Industry Forecast.
Read it for actionable guidance that will support timely adjustments to your transportation management and keep your freight moving.
Some LTL carriers are declining new business – even expanded volume from existing customers. I have never seen that happen. Others are selective about the freight they will move. Even the best LTL freight shipping carriers are missing pick-ups because they lack the equipment and workforce required to keep up with demand.
And hard to believe the constant embargoes that continue to be announced in North America’s largest transportation hubs.
While circumstances seem severe, I believe it is only a matter of time before the market corrects again. Until then, your ability to control your LTL freight shipping costs depends on proactive steps that will also go a long way toward protecting your service.
LTL Freight Pricing Renewals Increase
Carriers continue to closely examine their business, their customers and their operating margins. We are seeing an increase in both the volume of pricing renewals and the rates carriers are seeking in those requests. Double-digit cost increases are even emerging for customers with dense “cubed” freight, often the most lucrative shippers for LTL carriers.
Expect that to continue in the second quarter, especially if carriers try to capitalize by market chatter in the wake of the sale of UPS Freight to TFI International whose CEO is promising to bring a new “level of profitability” for the LTL services provider now branded as TForce Freight. Other carriers may try to capitalize on a rate-increase environment, and that could drive all pricing up.
Beyond renewals, LTL carriers are scrutinizing payables closely. In the 2020 pandemic peak, aging grew for many shipper balances. Remote environments slowed the manual paper trail for many businesses. Leeway granted last year has disappeared, and conversations around outstanding bills are becoming more serious for anyone who slips past payment terms.
Slow- and no-pay shippers are often the first targets for LTL carriers with more freight than they can handle. Customers who don’t pay on time – usually 30 days depending on your agreement – may be put on “cash only” terms until the outstanding balance is resolved. In extreme cases, carriers may hold freight – instead of dedicating LTL delivery capacity to customers who pay on time.
LTL Capacity Drives Freight Acceptance
It is not unusual for LTL freight service providers to be selective about the business they accept or the freight they move. In 2018-19 when capacity was tight, we saw carriers avoid long freight or over-sized shipments. When they accepted loads with unusual sizes, they increased the charges for it.
Now even extra charges will not sway service. Carriers are scrambling to rent trailers, hire workers and move freight. They are doing the best they can, but embargoes are still occurring in lanes where capacity gets too tight.
Ordinarily, Q1 brings a slow period for LTL carriers – a time when they can catch up ahead of the traditional peak months starting in August. Without that recovery time, some are declining new business during Q2 this year. We’ve seen some carriers not accepting any RFQs, even for existing customers adding volume – for new locations or additional business of their own.
Simply put, LTL carriers are concerned about the volumes they face when the traditional uptick in business occurs. Inventories are low for many retailers. Manufacturing and distributors are playing catch-up. If that continues into the fall, a tight capacity environment may continue throughout the year.
If that scenario motivates more carriers to decline new volume, keep in mind they are doing it to protect the service they are providing to their existing customer base.
Internal Steps for Better LTL Service
“How can I become a better shipper?”
The answers to that question can go a long way toward controlling your LTL freight shipping costs in the months ahead. Your LTL service provider knows what to do to take cost out of their business. Your logistics partner can help you find solutions that will remove additional cost.
This is a time when our LTL team is especially focused on mitigating cost increases to our customers as much as possible. You likely will not find savings on rates in a contract renewal right now, so understanding and utilizing least-cost carrier options is essential. That least-cost carrier may not be your primary carrier, but we encounter many shippers who could realize significant savings by choosing that option.
You have to be willing to let your transportation management system (TMS) do its job by recommending the best routing decisions and driving compliance throughout the organization.
It also helps to be a shipper of choice. That is often a conversation in truckload transportation, but this is a time where customers who pay attention to that are seeing dividends. A lot of decisions involving trailer availability are being made at local terminal levels. Those shippers with good relationships, those who treat local terminal drivers and manager with respect, they will be the shippers who get preferential treatment.
LTL Partner Helps You Ship Smarter
The LTL transportation environment faces unprecedented challenges, but the pendulum always swings and shifts control from LTL carriers back in to the shippers’ hands. It is just a matter of time. Can you afford to wait it out?
A partner who can help technology that supports optimal routing decisions can help you ship smarter. Analytics of your LTL delivery data, transportation trends and customer demands can help you improve network design and mode selection to protect cost further – and improve your customer service.
For forecasts and analysis across transportation modes – including truckload, parcel and international shipping – be sure to watch Supply Chain Forecast 2021: Q2 Transportation Trends. Our transportation management experts share their predictions, industry analysis and actionable guidance to support your business performance.
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.
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.
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.
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. Freight 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.
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.
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.
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.
Even within the past six months, many freight 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 Freight Rates 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 freight rates increase 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 freight 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.
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.
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.
![Demand for flatbed equipment is high, and while it is declining for dry van and refrigerated, don’t expect truckload rates to follow.]](https://www.transportationinsight.com/wp-content/uploads/2021/05/600-x-188-Topper-Q2-Truckload-v2.jpg)
