The freight market has been on the receiving end of several systemic shocks that continue to affect industry providers and shippers alike.
The first half of the year has been largely defined by unprecedented conditions due to the disruption stemming from the pandemic, a crippling polar vortex, and an influx of imports.
Each of these on its own could cause capacity constraints. But since all of them have worked in tandem on the market, capacity is strained beyond previously seen levels. And when you add in the current labor and commodity shortages along with an inflationary environment, it is apparent why freight rates have been steadily climbing.
Current conditions continue to be defined by widespread demand imbalances as there is more need for trucking services than available capacity. That has an upward effect on rates and can be a challenge for brands to retain service levels if they are not working without a specialized logistics provider.
To get a clearer picture of what is happening in the freight market, let’s look at what’s causing this disequilibrium.
Freight Market Volumes Climb Again
After weeks of a slight softening, outbound tender volumes are climbing back to previous peak levels. According to Freight Waves, “The Outbound Tender Volume Index at 15,980 is nominally higher now than basically at any point in the past 12 months with the exception of the week prior to Thanksgiving/Black Friday last year.”
This index analyzes just how much volume is in the freight market, and in short, there is a lot. When adjusted and compared to last year’s historic peak season, volumes are down just 2.2% over last November. Volumes this massive soak available capacity, driving up rates in the process.
This recent trend also comes as Independence Day inches closer, and more drivers are pulled off the road to spend the holiday at home. That means that there will be fewer available trucks to transport the products flooding the freight market in an already tight market.
Retail restocks are a current culprit of increased volume, as are sources of direct consumer spending. As we enter grocery peak season, we could see this trend continue, especially as people return to gatherings and other warm-weather events.
Inflation and Freight Market Conditions Driving Up Rates
The annual rate of inflation is now 5%, a 4.2% increase from the previous period. Moreover, the Commerce Department reported that the personal consumption expenditure price index is up 3.9% over the last 12 months.
The Federal Reserve relies on this number to analyze yearly inflation, which is now almost double its target for the year. This spike raises prices of all kinds, including freight rates. And when combined with the factors shrinking capacity, we see a significant rationale for rates that have been steadily climbing for the past year.
Retail Inventory Restocks Buoying Freight Market
We’ve seen record levels of inbound shipments because of elevated retail demand over the past 12 months. Despite a dip in May, retail sales were growing in year-over-year comparisons throughout the back half of 2020 and even into the spring of 2021. This bump in buying has depleted inventory levels throughout the sector, and shippers spent several quarters trying to catch up.
As manufacturing returned in Asia, enterprises began bringing imports in at historical volumes. It was the direct cause of a 113% increase in twenty-foot equivalent units at the Port of Los Angeles, where their goal is to clear a backlog of anchored ships waiting to go to port. Their situation is not unique, as many other major ports along the West Coast and the East Coast feel the same pinch.
More imports translate to more freight that needs to be hauled via land transport modes, e.g., rail, over-the-road trucking. Thus, as more goods have entered the US, more capacity is used to get those products to their proper destination.
Economic Conditions Thinning Driver Pool, Increasing Pay
In addition to freight and retail, the pandemic drastically affected the way the labor market functions. Available jobs hit a record in April at 9.3 million openings. With the manufacturing, housing, and construction sectors booming, employers are finding it difficult to hire, which has caused carriers to increase driver pay and benefits, putting further upward pressure on rates.
Moreover, the looming potential of the proposed infrastructure bill could again disrupt the trucking labor market as other labor positions become more plentiful. These positions tend to be viewed more favorably than driver spots since they do not require the extended hours away from home and generally less dangerous. Along with shrinking the supply of drivers, the infrastructure bill could impact the freight market by adding more volume as building materials will be much need throughout the country.
What’s Next for the Freight Market?
Looking ahead, it is not likely that we will see freight rates declining with any significance. While produce season has largely wound down in the Southeast and will begin tailing off in other areas by mid-July, freight volumes are so high that rates will remain at elevated levels year over year.
And with the retail peak season on the horizon in late Q3 into Q4, more volume is closely behind. There may be a brief reprieve on capacity pressure in August and September, but it will be short-lived.
Work with a True Logistics Partner
The key to success in this market environment is planning, booking early, and leaning on trusted transportation providers to lend a helping hand. Trucking market conditions can change quickly. However, regardless of how the market shapes up in the next two quarters, vendors focused on partnerships stand to win in 2021.
Finding a logistics partner centered on partnership will prove to be an effective choice irrespective of market conditions.
Working with a 3PL on a strategic level can unlock previously untapped profit, offer more visibility, and streamline overall operations.
It is critical in current market conditions not to chase rates. Lower prices do not translate to less logistics overall spend and often are accompanied by poor service,
With cheaper trucks, you can expect dropped orders, late deliveries, rate hikes, additional fines, fees, and headaches that don’t move your supply chain forward towards its goals.
Instead of chasing rates, work with Zipline to find a competitively priced carrier that best suits your delivery needs.
Stay Up to Date with the 2021 Freight Market
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