If anything, the year 2020 highlighted the ways life can veer dramatically from the expected. Along with its impact on health and the broader economy, the COVID-19 pandemic and resulting rise in online orders drove unpredictable growth and contributed to service challenges in the truckload (TL) and less-than-truckload (LTL) markets. These were exacerbated by health concerns that kept some drivers off the road.
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.