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.
Freight Capacity Shortages and Service Challenges Persist

Freight Capacity Shortages and Service Challenges Persist

The Logistics Manager’s Index (LMI) showed a December 2020 logistics growth rate of 66.7, or about 12.7 points ahead of the 2019 rate. While a small drop from November’s 70.8, this may be more of a breather than a shift. The decline in growth rates are reflected in slight declines across all of the metrics of the LMI (except for the two freight capacity metrics which have increased).

Consumers show no signs of halting online shopping activity. In addition, the ramp-up of vaccine distribution, while it will hasten a return to some sort of normalcy, it will consume capacity. The upshot? Freight capacity shortages and service challenges likely will remain at some level.

LTL Market Bears Weight of Freight Volume Growth

Nearly all – 87.9 percent – survey respondents to a JOC survey in September and October 2020 indicated that longer transit times were a challenge. In addition, 47.2 percent experienced increased shipment loss or damages, and two-thirds had labor shortages.

The sustained growth in shipments across the logistics industry during 2020 contributed to these numbers. Tonnage in the LTL sector in November 2020 showed a 6 percent year-over-year increase in growth, according to the Cass Freight Index.

A few regions were especially hard hit. The Port of Los Angeles processed 889,748 twenty-foot equivalent units (TEUs) in November 2020, up 22 percent from a year earlier. During the same time, at least one carrier suspended financial guarantees for time-critical services in California and Portland, Oregon due to spiking COVID-19 cases among its drivers.

The increases in shipment volume also meant many distribution centers were taking longer to accept shipments. That led to backups with carriers. Detention and storage charges, formerly unheard of in the LTL market, have become more common.

Consolidation in the market continues among both larger and regional companies. Among these moves, Cross Country Freight Solutions announced in January the acquisition of Midwestern LTL carriers, Price Truck Lines and Mergenthaler Transportation. In September 2020, Forward Air Corporation, an asset-light freight and logistics company, announced its acquisition of the assets of CLW Delivery, Inc., a privately-held, final-mile provider with annual revenues of about $20 million.

Because capacity constraints show little sign of easing, service challenges likely will continue into early 2021. Expect corresponding impacts on rates in 2021

LTL Solidifies Residential Deliveries, Moves Toward Digitization

Many LTL carriers focused on effectively handling residential deliveries are exploring new methods, such as purchasing smaller trucks that can maneuver in neighborhoods and urban areas.

The LTL sector is steadily digitizing, with the formation in November 2020 of the Digital LTL Council, comprised of 20-plus transportation companies. Its goal is to establish a set of uniform standards that support the scalable automation and digitalization of LTL shipments.

Over the past year, some council members experimented with standards for electronic bill of lading (eBOL) solutions. Carriers that digitize could save up to 1.3 percent of costs. Digitization should also cut errors and allow all parties to quickly locate freight in transit.

Given ongoing tightness in the LTL market, carriers likely will be selective about the shippers with whom they partner. Shippers can make it easier for carriers by improving facilities where needed and facilitating efficient drop-offs and pickups.

Truckload Freight: Volume Up, Service Down

As in the LTL market, the truckload (TL) market is experiencing both sustained growth and service challenges. The American Trucking Association’s For-Hire Truck Tonnage Index rose by 3.7 percent in November, driven in part by robust e-commerce orders and strong single-family housing starts. At the same time, languishing restaurant, manufacturing and energy sectors remained a drag, the ATA noted.

Data from DAT Freight & Analytics shows another bifurcation in the truckload market. Dry van contract volumes were down 10 percent year-over-year, while spot market volumes were up 107 percent. Similarly, refrigerated contract volumes were down 21 percent, while spot market volumes had spiked 116 percent.

About 41 percent of carriers responding to the 22nd COVID-19 survey by Morgan Stanley, published in December 2020, indicated COVID-19 has hampered their ability to operate smoothly. The driver shortage was the most commonly cited reason, with varying emergency restrictions coming in second.

Freight Capacity Constraints Drive Up Truckload Rates

Given ongoing capacity constraints, the truckload market likely will see rates continue to increase for at least the first half of 2021. Transportation Insight expects contract rates to increase 3-5 percent, and spot rates to rise by about 5-7 percent.

However, some good news appears further out on the horizon. A smaller percentage of carriers responding to the Morgan Stanley COVID-19 survey – 36 percent versus the previous 39 percent – indicated the impact of COVID-19 would remain negative a year out.

In addition, truck sales are up nearly 197 percent year-over-year. As these come online, they will boost capacity, helping moderate the upward pressure on rates.

Several unknowns could affect the truckload market. They include the potential for another wave of shutdowns. Transportation has been considered an essential business, which should mitigate any impact.

Potential changes from the new presidential administration, as well as from newly elected state and local officials, are additional unknowns. However, as of early January, no proposed regulations that would significantly impact the truckload market appeared on the horizon.

Challenges to Truckload Digitization

Many shippers in the truckload space are interested in digitization, including electronic bills of lading, which would cut the time required to load trucks and reduce exposure to illness. However, given the thousands of carriers across the country, ranging from national enterprises to operations with a handful of trucks, this shift likely would occur incrementally.

Even as the volatility of 2020 abates, most carriers will continue to focus on contractual rather than spot pricing as a way of gaining further stability.

Shippers of Choice

In both the truckload and LTL markets, capacity constraints appear likely to continue.

Shippers who continually switch carriers to improve service may find their efforts fruitless.

Instead, by taking steps internally to remain shippers of choice and working with logistics providers like Transportation Insight to address challenges, you can mitigate rate increases and strengthen the service your receive and your access to capacity.

Download our First Quarter ChainLink 2021 for more forecasts and cost impact analysis from our freight capacity experts. Read this quarterly industry forecast for a multi-modal look at the trends that will affect your business in the months 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.

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.

Logistics Outsourcing? 4 Things Your Partner Needs

Depending on the logistics outsourcing approach that your business deploys, make sure your provider’s skillset aligns with your organization’s needs. 

In today’s environment, supply chain practices are taking central focus. Recovery will depend on adaptive response to global pandemic, economic turmoil and a sharp shift in buying practices and delivery needs. 

A lot of companies don’t have a complete understanding of what their partners should be providing. Outsourced solutions supplement your internal response to these dramatic shifts. When your partner exhibits these 4 Outsourcing Must-Haves they have the buy-in to keep you in the game.

Your partner can’t deliver? Better understand why.

Outsourcing Must-Have No. 1: Responsiveness

If you are not with a responsive partner that is able to enact change quickly within your supply chain, you are setting up yourself and your company for failure.

What does it mean to have a responsive partner? Your broker or 3PL should have a regular cadence for response. This is more than a quick, timely email follow-up when there is a problem – although that is important.

More than that, a responsive partner lends an empathetic ear to what is happening within your organization. That is fundamental to internal communications within the partner organizations, and it streamlines the ability to enact change that delivers value back to you – and your customer. 

A global pandemic validated the vital importance of having a responsive partner able to deliver value in the face of your individual disruption. 

Outsourcing Must-Have No. 2: Visibility

Not long ago, visibility was on the wish list. Today, it is a must-have for doing business.

Global supply chains have become so complex with the myriad of partners that exist around the world. Even if you only have a domestic North American supply chain, it is still quite complex.

Whether you outsource logistics, manufacturing or human resources, your partner should be able and willing to provide you with visibility to your data. It is valuable beyond belief. 

Accessing that data – as well as meaningful analysis of it – requires technology. You should have access and visibility to what is happening down to the SKU-level, in terms of historical trends in the shipping market with parcel, LTL, truckload and warehousing costs. 

If you are trying to make a decision on outsourcing part of your business, there is data that is going to help you with those decisions. If you do not have access to that data – or if you cannot get it quickly, you are with the wrong partner. 

Outsourcing Must-Have No. 3: Agility

Look back at the first half of 2020. How many supply chains were turned upside down? Right or wrong, so many risks for the future have emerged.

For example, what happens if, culturally, we decide not to continue doing business with China? What if a big portion of your market does not want to buy from a company that sources from China? 

With strategic alignment to your business and operational agility, your partner has the ability to anticipate market changes and provide a response plan that mitigates any emerging threats to your profitability. 

Whether achieved through their own technology stack or internal alignment, your partner needs to have the flexibility to adjust as your business changes.

Look at the retail world. In the early stages of COVID-19, every retail store closed apart from the essentials. That spurred panic for organizations still trying to figure out ways to sell products. It forced the traditional retail model further toward e-commerce. 

Companies that have really thought about their supply chain were able to begin using their retail footprint to fulfill from stores. Ship-from-store strategies kept inventory moving without requiring moves from distribution centers scattered throughout the country. 

That helped Levi Strauss expand its e-commerce business 25 percent during its second quarter, including a 79 percent uptick in May. About one-third of that online demand was fulfilled by stores. Doing that requires a massive change. If you do not have the internal resources of Levis, you need a partner that can support you. 

Outsourcing Must-Have No. 4: Expertise

Global networks are complex, Technology is changing rapidly. Your supply chain drives many moving parts across your business. A world-class partner should provide expertise in managing each of these dynamics – in addition to its core executable value. 

What does that mean? You need a partner that is delivering expertise around technology, process, innovation and their experiences in other industries.

A supply chain master that manages hundreds of supply chains across diverse verticals, service models and geographies has the ability to apply strategies that deliver optimal logistics performance across a broad variety of operational environments.

That broad experience means that when there’s a new technology, innovation, or process that might improve manufacturing, our supply chain leaders are looking for ways to apply best practices in retail or distribution arenas.

If you are in a monitored outsourcing model focused simply on tactical execution, expertise has limited value. 

However, if you are looking for a truly strategic, orchestrated relationship with a partner, expertise keeps your company moving forward in a disruption-filled marketplace.

What Sets Your Partner Apart?

If you have a responsive partner that is agile, flexible and able to deliver visibility and a deep bench of experience – hold on to it. These are prerequisite traits for a successful service relationship.

It also helps to know some of the traits that set a logistics provider apart in the marketplace. Three capabilities really elevate the performance of your entire supply chain. We detail these qualities during “The Logistics Dilemma: Insource vs Outsource.” 

Watch the webinar today. Hear real world scenarios where our clients have realized elevated value from:

  • Trust
  • Transparency
  • Strategic alignment

Your organization works every day to fulfill strategies focused on meeting the needs of your customers – and deliver additional value along the way. If your partner does not have alignment to and understand your strategy, how can you expect them to align and create more value for you?

Open the webinar and learn more about what sets a Supply Chain Master apart.

3 Outsourcing Models. Which is Right for You?

Digging deeper into outsourcing options, the situation gets a little more gray – especially in the complex supply chain and transportation management environment where so many aspects of your business can be affected by diverse nodes across your network.  

If you are reading this blog, you probably know what is involved with insourcing your supply chain management. Let’s explore three approaches to outsourcing. The model that best fits your business depends on your goals.

  1. Complete, Monitored Control

If complete in-house operational management is at one end of the spectrum, monitored outsourcing is on the opposite end. This is the throw-it-over-the-wall type of outsourcing.

That’s the original equipment manufacturer that says, “Hey, I need to make this widget. Here are the specs. This is how many we need. This is when we need them.”

You might examine activity once a quarter, once every six months, maybe only once a year. If something breaks, it is very hands-off.

A lot of times in logistics management, there’s not a lot of differentiation in that monitored outsourcing. A lot of times, it is going to cost a lot less and yield a lot less added value. In this scenario, you don’t have the management resources or the people you need it to manage a business function, so you put that completely on your service provider.

  1. Orchestrated Outsourcing 

With an insourcing environment, you have complete control, but you also face the most cost in the staffing of expertise, technology resources and all those strategic drivers in your supply chain performance.

In an orchestrated outsourcing approach you relinquish a measured amount of activity.

A lot of 3PL relationships today operate in an orchestrated model. You are relying on a 3PL, maybe it’s a broker that executes shipments, but you are still managing them. You have staff assigned to oversee their performance, track those shipments and make sure that 3PL is doing the things they need to do.

There is a lot more review, a lot more interaction, and of course, you are still driving that strategy piece.

  1. Hybrid Model 

You can often realize the most benefit through a hybrid approach. Here, you outsource key functions and access expertise-driven intelligence that supports ongoing improvement. You give up a measured amount of control, but develop a strategic trust that can help you determine service adjustments as business demands change.

In a hybrid approach, our logistics experts might be on site with you, right in there operating in your supply chain. As things change, minute-by-minute, hour-by-hour, day-by-day, as your partner, we are there ready to pivot our objectives as well.

This creates a strong strategic alignment, and it allows for a lot of trust and transparency. We operate as your logistics department, utilizing performance monitoring processes that help you hold our team more accountable for results. 

What Outsourcing Approach is Best for Your Business?

Understanding your company‘s internal people, process innovation, technology, and culture helps you decide whether to insource or pursue orchestrated, hybrid or monitored outsourcing.

You can start with one model and adjust with emerging change – in business strategy, human resources, marketing or supply chain disruption. The challenge is, as we saw in the first half of 2020, things are changing at a pace we have never experienced before. 

Having a strategic partnership in place can help you adjust the control you want to have. More importantly, in that close partnership you will always realize more value in responsive communications and rapid deployment of alternative supply chain strategies.

If you are deciding whether supply chain management is best insourced or outsourced for your business, watch our webinar, The Great Dilemma: Insource versus Outsource.  It shares four things your logistics partner must be able to deliver, as well as company traits you need to understand before making a decision.

Insource or Outsource Supply Chain? 4 Questions to Ask Yourself

If you are a growing company and are not already asking that question, you will soon – especially considering all the changes we’ve experienced in our economy recently. 

When weighing pros and cons of this important operational decision, start with a look in the mirror. Who are you as an organization?

You examine closely potential partners for any outsourcing relationship. You should pursue the same due diligence within your own organization. Knowing where your business stands in key areas can help you decide if the time is right to insource or outsource.

Here are four things you need to know about your organization – and any of your partners – to drive your insource/outsource decision. 

  1. Do We Have the Supply Chain Talent?People are the driver behind success. This is incredibly important in today’s supply chain environment. There’s so much change happening in the marketplace you have to stay on the cutting edge

    How do you stay on the cutting edge? Experienced people with tons of drive, in terms of learning and bringing innovative ideas to your organization.

    The supply chain talent gap is already big, and it is only going to get bigger. Companies are fighting for the top talent, and it is difficult competing against companies with unlimited budgets – Amazon, Apple, DHL or Transportation Insight.

    Are you confident that your company has the ability and the resources to attract and retain top-tier supply chain experts? As a mid-market or small market company, it is not going to be easy to get.

    And it’s not just the talent. What is your bench strength? Is your supply chain resource depth going to be able to rise to challenges and power your company’s disruption-filled environment? 

    The intelligence, and the experience that these people have is critical, but it also comes down to raw numbers. If you are a growing organization, maybe at one point, one person with the experience and intelligence necessary to do the job can effectively handle every step of your supply chain. 

    As you scale your business, you may need more than one person. In our webinar we talk about how possessing the agility to scale up your organization rapidly can make a big difference in the responsiveness you need to deliver on sales. 

    Other organizations experiencing their own growth face those same needs for people. That exacerbates the talent gap.
  2. Do We Innovate Processes by Nature?As you continue to scale your business to meet demand, are you confident that you have the processes in place to not only support that, but also innovate within those processes over time? Is that driven through KPIs? Or through the talent that you have?

    Many organizations are not set up to consistently advance innovation and measure that evolution. Companies like Amazon have process innovation inherent in their DNA, but not everyone has it at their core.

    The first half of 2020 has been a stark reminder: processes that were sufficient yesterday may not position you to compete tomorrow. To respond rapidly during a global economic disruption, a dynamic shift to e-commerce, or even a simple hiccup, it is necessary to evolve.

    As you do, collecting and monitoring data around process change determines whether you are heading in the right direction or toward more required adjustments.

  1. Do We Have the In-House Technology?The speed of change in technology is nearly impossible to keep up with unless that is your primary focus. Does your current technology platform support your supply chain management now? Will it continuously evolve with you as your customers’ demands change?

    You can build your technology stack, maintain it in-house, and join the race with the Joneses of the Technology World – SalesForce, Microsoft and Amazon. This generates a need for ongoing capital investment. 

    Unless you are a technology company, this might not be your area of expertise. One of those technology companies will sell you a base solution and customize it at added cost.

    Alternately, you can realize cost effective value working with a partner built on technology to suit your specific business needs. Be mindful of the cultural effects a new partnership might create. 

    Change management is a huge piece of the insource versus outsource conversation, but it can also allow you to redeploy current resources toward supporting your core competency. 
  2. Does this Fit Our Culture?Culturally, what does your organization look like? How do you make decisions? Is it a top-down, “You’re going to do what I tell you to do,” or a bottom-up, “Hey, I want ideas, bring the ideas.” 

    Are you seeking internal innovation or are you more focused on your core competency? Do you build or buy to solve challenges? What will our culture tolerate? What will it support? What does it really need?

    You have to be honest with yourself, and your company, and your partners. Having this perspective is imperative to the success of any relationship. 

    You could be the best company in certain spaces, but outsource certain things that you are not good at, culturally. To do that, you have to understand your organization. Even though Amazon is extremely good at what it does, it also recognizes the areas where it is not good. That drives focused Amazon investment into supply chain improvement opportunities.

    Understanding your culture will also help determine how you work with your partners, and whether your organization is in a position to realize success from an outside relationship. 

Master the Logistics Dilemma: Insource vs Outsource

People, process innovation, technology and culture. Before deciding whether to insource or outsource supply chain management, develop a clear understanding of these four aspects of your own organization. Keep them in mind when considering potential partners.

For more insight that can help you determine whether your company is better suited to insource or outsource logistics activities, watch our webinar in Transportation Insight’s Supply Chain Masters Digital Event Series. 

Open the webinar today for real world examples of companies evolving their supply chain strategy for growth. You will also get insight on the three types of strategic outsourcing approaches and four things that your logistics partner must be able to deliver.

Use Logistics to Compress Cash-to-Cash Cycles

Logistics is the lifeblood of any organization. It connects suppliers, manufacturers, intermediaries, carriers and end customers with actionable data based on historical transaction patterns. Yet too often corporate leaders view logistics as a cost center instead of a competitive advantage. We find the best way to overcome that perception is to connect the dots between our deep skill set and the positive financial outcomes we can deliver for our clients.

When Transportation Insight talks about logistics as a competitive advantage, we refer to the speed to serve as much as the cost to serve. Time is money.  Companies implementing strong logistics strategies typically turn their inventory faster. They need to rely less on safety stock throughout every level of the supply chain, which is itself a cash burn. They keep goods in motion so they reach consumption points faster, and turn capital quicker.

Reduce Cash-to-Cash Cycle, Free Up Operating Capital

For definition, cash-to-cash cycle time examines the number of days of working capital an organization has tied up in managing its supply chain. The faster the cash-to-cash cycle, the fewer days an organization’s cash is unavailable for other investment. According to American Productivity and Quality Center (APQC) research, the top performers have 60-day cycle times. The bottom performers clock in at about 120 days+.

Reducing cash-to-cash cycle time involves eliminating factors (such as inventory) that tie up operating capital. Effective organizations optimize inventory to free up capital while maintaining enough stock to satisfy customer orders. This can be accomplished through a well-designed demand forecasting, comprehensive company-wide inventory optimization strategy, supported by logistics that aligns roles and responsibilities in the supply chain, and identifies processes that can be streamlined.

Streamlining order-to-cash processes can also reduce cash-to-cash cycle time because faster invoice processing and receipt of customer payment decreases the amount of time that an organization’s capital is unavailable.

Make no mistake, there are some logistics people who love inventory because it covers some of the “stumps in the water,” as we like to say. But safety stock exists because businesses struggle to match their inventory needs with final demand. Safety stock is also an impediment to optimal cash flows.

But in a lean world, there is no such thing as “safety stock.” Everything turns in its own time, and on its own velocity. Thus, it is critical to identify and root out supply chain inefficiencies at the front end. Are you optimizing inbound shipping lanes, whether domestic or international? Does your inventory strategy balance your costs with meeting customer delivery expectations? Do you have the technology and expertise to effectively manage your product velocity and shrink the cash cycle?

Companies have multiple customer channels. You may have a traditional B2B channel, an e-commerce channel, or a hybrid. Each channel may have its own dedicated inventory. They also have their own cash-to-cash cycles. They are certainly going to have their own logistical challenges. A capable logistics partner like Transportation Insight can support the unique needs of each channel to achieve the most financially desirable outcomes.

Mastering Logistics to Meet Consumer Demand

There are companies that have succeeded in re-inventing the wheel. Then there are others that prospered by improving on legacy processes. Walmart wasn’t better than any other retailer. It offered the same brand of toothpaste and laundry detergent as others did. Sam Walton’s genius lied in focusing on logistics to get goods to the shelves, and in customer’s hands, faster and cheaper than anyone else.

By putting the right product, in the right place and price, when and where the consumer wanted, Walmart accelerated cash returns for manufacturers and for itself. It also turned out to be a lethal combination-for other retailers.

Mastering the competing dynamics of transportation and inventory requirements can be a complex undertaking. You need to weigh the importance of improved working capital with ensuring that goods are always available when and where your customers need them. This is our forte.

Each day, we bring our data platforms, deep understanding of carrier networks, rate negotiating and auditing expertise, and decades of accumulated industry experience to bear to solve these problems. We are quite candid with customer feedback, and what we hear most from our clients is that we take challenges like these off their hands, provide them with rich analysis, and enable effective decision-making.

For more information, read “Move to the Front” today.

From NAFTA to USMCA: All Trade Agreements Are Not Created Equal

Furthermore, many companies focused on overcoming operational challenges of the pandemic have been able to delay response to a regulatory action that’s been outside the spotlight.

Until now.

On July 1, the United States-Mexico-Canada Agreement (USMCA) replaces the existing requirements of the North American Free Trade Agreement (NAFTA), with an exception for certain automotive products that will have a three-year transitional period. Many elements of NAFTA were retained in the new agreement; however, there are distinctions in the USMCA that require review and consideration by trade participants to ensure they effectively manage compliance during this program transition. According to a recent survey, there appears to be some confusion among supply chain managers on how to implement these changes and mitigate non-compliance risk to maintain company profitability.

Importers’ goods that qualified under NAFTA may also be eligible for USMCA; however, there are subtle changes that may impact those determinations. USMCA due diligence should be conducted by all trade participants as a demonstration of compliance, for all companies participating in North American trade between the United States, Mexico and/or Canada.

5 Differences Between NAFTA and USMCA

  1. Importers will no longer be required to complete a formal NAFTA certification document. A certificate of origin may now be completed based on information provided by the producer. U.S. Customs and Border Protection (CBP) is not mandating a standard format for certificates of origin as long as they contain all of the required data elements. A best practice is to have the certification in hand before making a claim. Previous NAFTA certificates and certification documentation under USMCA must be kept for a minimum of five years.
  2. The de minimis threshold increases. NAFTA’s threshold of 7 percent for FOB value increases under USMCA to 10 percent. The de minimis for textiles and apparel is different.
  3. The terms of the USMCA will remain in effect for 16 years, after which time the parties can choose to revisit and/or renegotiate those terms, or withdraw from the agreement altogether. The agreement is also subject to a review every six years, at which point the United States, Mexico, and Canada can decide whether or not to extend the agreement if they feel doing so would be beneficial.
  4. Merchandise Process Fee (MPF) refunds will not be made on post-importation claims. An importer who fails to claim preferential tariff treatment at the time of entry will not be able to recoup their MPF through a post-summary correction or reconciliation later.
  5. Changes were made to the Rule of Origin for various goods (e.g., manufactured goods, pharmaceuticals, healthcare products, textiles and apparel, agricultural goods, etc.). However there are significant changes within the automotive sector concerning eligibility based on regional value content. In general, USMCA now requires the total North American-based content of a vehicle to equal 75 percent (up from 62.5 percent). USMCA also requires that 70 percent of a vehicle’s steel and aluminum must originate in North America.

How should importers prepare for the USMCA transition to ensure compliance?

Importers should carefully review their imported goods to ensure they understand the new rules of origin and can verify that they qualify under the new agreement. Binding rulings that determine parameters of origin determination under NAFTA will be invalid, and a new binding ruling will be required for USMCA.

We also recommend performing a comprehensive review of imported goods through internal or external compliance means to demonstrate USMCA Compliance due diligence. For example, there may be cases where goods did not qualify under the terms of NAFTA but may now qualify under USMCA.

And above all else, it is imperative that importers maintain a proper record-keeping system. This means you must document where all of your goods originate, and you must have on file a detailed description of your sourcing, production and determination process that clearly defines that the goods qualify.

Our Experience is Your Compass

It is a grave error for importers to assume their goods qualify under USMCA, even if they were NAFTA eligible.

To help guide you through the necessary process to determine whether or not your products do meet USMCA rules, Transportation Insight’s team of international compliance consultants are ready to help you outline and execute a personalized scope of work plan to ensure your USMCA program is in full compliance.

While your focus today on maximum supply chain efficiency can improve your ability to meet arising market demands, a partner with expertise in international trade compliance brings you peace of mind – and so much more. We take over the work of helping you navigate through the change from NAFTA to USMCA so you can progress toward global supply chain mastery.

Make sure your trade compliance processes are updated to protect your business financial risk that emerges during the implementation of complex new regulations. Contact one of our global trade compliance experts today for a free consultation.