Experts Warn Truckload Rates Will Rise in 2021

Everyone in the logistics industry is currently asking the same question: what will truck capacity and rates look like for 2021? Both following and amidst the panic purchases and supply chain crises of COVID-19, the question about what trucking will like in the coming year has become the big-ticket issue. Just about every index, report, and large-scale carrier executive is telling us to be on the lookout for double-digit truckload rates in 2021.

Several factors are impacting this steep rise in truckload rates, but most of them can stem back to tight truckload capacity, verging on an anticipated capacity crunch as we head into 2021. Let's take a look at a few of the most important.

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Fewer truck drivers

A key factor in driving up truckload rates is a lack of available truck drivers. This truck driver shortage means that even if there were plenty of trucks on the road with perfectly optimized routes (which there’s not), there just aren’t enough people to complete the itineraries. In order to create the capacity that the shipping economy needs, carriers have been raising the driver pay scale to attract more drivers, and these costs are being pushed to shippers-retailers in terms of higher truckload rates.

Maybe one day self-driving trucks will be able to address this shortage. For now, pay increases and more attractive working hours is the only solution. It’s also important to note that there is also a lack of warehousing workers. With short-staffed distribution centers, picking and packing is taking much longer, and thus route planning often gets waylaid. Therefore, warehouse staffing wages are also rising, which is further pushing up spot rates.

Read: What is Causing the Truck Driver Shortage and How Can We Fix It?  

Insufficient equipment

It’s not that there are fewer trucks on the road. However, there is an ever-increasing demand for truck shipping, especially as ecommerce and last-mile logistics increase. That means there are simply not enough trucks on the road—and not enough trucks with drivers—to handle the significant influx of demand. Moreover, full truckload can’t handle the capacity crunch, so companies are quickly looking to move to an LTL model.

Although LTLs often have lower costs, the stress on the LTL market due to demand is now causing rates to skyrocket. Additionally, a lot of carriers are focusing on implementing advanced technologies like route planning software and demand forecasting analytics. To not have these kinds of technologies leaves carriers and retailers in the dust; however, there comes a significant price tag for implementing these technologies.

This is another reason we’re seeing logistics costs being pushed to shippers.  

Carrier closures

Unfortunately, a lot of trucking carriers and 3PLs have been going out of business at an alarming rate over the past two years due to an inability to keep up with the times or financial and capacity constraints (particularly following pandemic shutdowns). As these companies go out of business, there is a temporary constraint in having to move around drivers, equipment, and contracts—that is, if they don’t pull the equipment altogether in order to pay off debts and bankruptcies.

As even large companies like Celadon are filing for bankruptcy, we’re seeing a shuttering butterfly effect throughout the transport industry that’s rippling out in terms of capacity and cost.  

Booming e-commerce

Ecommerce has skyrocketed due to COVID-19 stay-at-home mandates. As the holiday season approaches, ecommerce will take over the retail market for Q4 in just about every industry (according to the CBRE 2020 U.S. Retail Holiday Trends Report).

Ecommerce purchases put higher demand on trucking capacity, particularly in regards to last-mile residential deliveries, which is adding even more stress on already tight truck and trucker availability.  

Volatile demand

With all of the unpredictability that stemmed from COVID-19, consumer demand is more volatile than ever. Some industries saw a radical drop in demand, like the tourism industry, while others like personal care saw massive, unmanageable demand. Demand influx and volatility can have a significant bullwhip effect that dramatically impacts the efficiency of the supply chain. If not handled effectively and promptly, one shift in demand or one disruption upstream can cause serious slowdowns for the entire chain.

The largest concern with a slowdown like this is that retailers and customers are still demanding fast delivery. Carrier companies have to raise their rates to answer demand changes and offer speedy delivery at the same time.

That’s why supply chain agility is a greater necessity than ever before.  

COVID-19 prioritization shipping

Trucking companies across the nation and the globe have, for the first time in modern history, a duty to public health and safety over their commitments to even their long-standing clients. A prioritization for COVID-related supplies has caused trucking companies to deal with an even tighter capacity crunch for non-essential goods, which is further causing rates to jump, even for large companies that have had withstanding low-cost contracts with carriers.

Uncertain conditions

Election year politics, social and economic shifts, and even uncertain weather conditions are creating a “bucket of risk” that a lot of carriers have decided to address by raising rates. Not only can “panic” make spot market rates jump, but these increases are also a fail-safe in the case of major incidents. For example, if a huge snowstorm hits the northeast this season, trucking capacity and speed will nearly halt in their tracks.

With an increase in rates, carriers will theoretically have the resources and technology to address these fluctuations with speed and flexibility. The goal of strong supply chains is to use increased rates towards creating a lean supply chain and implementing forward-moving technologies.  

The impacts of increasing rates

Altogether, these burdens on carrier companies will be offset by rate surcharges, resulting in low-level double-digit rate increases by the second quarter of 2021. Shippers will see a higher cost on their invoices, so retailers will need to focus more than ever on understanding their shipping needs, negotiating effectively with RFP bidding, and selecting the right shipping partners with advanced technology and fair rates.

Carriers will need to emphasize customer satisfaction while implementing technologies that can help streamline delivery speeds and routes while creating a more agile and flexible supply chain.

If you’re looking to give your logistics an upper hand going into 2021, despite all the anticipated fluctuations, contact Redwood Logistics to create a custom supply chain strategy that attacks your unique challenges while considering rising truckload rates.