Following an unprecedented downturn, the freight market has posted an almost full calendar year of impressive growth spurred by demand from a few sectors of the domestic economy.
Volumes dipped slightly after the holiday season but came roaring back in February and remained elevated for the remainder of Q1—historically, a slow month for trucking.
The second half of the past quarter was highly atypical and posted freight volumes that vastly exceeded those generally seen during peak season. Booming conditions brought another all-time high in freight as spot market rates reached their highest levels in March.
These conditions were exacerbated by heavy winter storms that crippled Texas and the surrounding areas; however, conditions are leveling off somewhat.
According to Dean Croke of DAT, “dry van post volumes increased by 15% week over week in the top 10 markets.”
As shippers struggle to meet deadlines with their customers, more freight is pushed to the spot market resulting in increased spot rates.
“Eight of the 15 markets that we monitor as a broad, representative benchmark were positive on a week-over-week basis,” states Seth Holm of Freightwaves. “The markets with the largest gains this week in OTVI.USA were Laredo, Texas (12.07%) Memphis, Tennessee (5.37%) and Cleveland (5.08%). The Outbound Tender Reject Index has reached 27.6% and seems to be stable. I believe we are near the natural ceiling for tender rejections, and this is evidenced by surging spot rates.”
But as things begin to normalize, we are entering the beginning of heavier produce volumes throughout warmer climates across the US. So, what is coming our way during the next few months?
What to Expect in the Q2 Freight Market
We anticipate volumes to remain somewhat stable through April and increase in early May as produce fully sets in.
Many carriers are in the process of adding trucks and drivers. However, with demand for trucks at the highest it has been in decades. Demand exceeds supply for drivers by roughly 50,000.
Truck manufacturers also find it challenging to keep up with demand, and waitlists for driver courses continue to increase.
For now, we anticipate that constrained capacity will remain through Q3 and perhaps the remainder of the fiscal year. In short, we expect it to be difficult to source capacity in the coming months until contract rates edge toward spot rates and the market finds a new “normal.”
Here is a look at why.
Buying Trends Still Shaping the Q2 Freight Market and Beyond
Despite a global pandemic, many in the consumer goods industry posted a strong 2020 driven by increased demand for their products as consumers redirected spending away from experiences to CPG.
As with many of our once ingrained habits, consumption trends shifted as a result of COVID-19. Many experts are not calling for a reversal and, in fact, for many of them to stay permanently.
The Consumer Brands Association (CBA) released a study citing that they expect CPG purchases to decelerate between 1-2% in 2021 compared to 2020. But that figure still represents a growth of about 8% when compared to 2019.
Katie Denis, the vice president of industry narrative at the CBA, spoke to Transport Topics recently, stating, “I think the ongoing demand to me breaks down into short-term and long-term behavior. In the short term, obviously, we’re still elevated because we’re still very much in the pandemic. From a long-term perspective, a lot of our behavioral patterns changed, and that’s going to elevate demand.”
Part of that behavioral pattern change has been the way consumers interact with retailers and purchasing channels. Many have jumped online to fulfill their CPG needs, and as the pandemic wanes, this will not likely retreat.
This elevated demand level will have similar effects on the freight market that were present during the latter half of 2020. Trucking services will likely continue to be a very much-needed commodity throughout the year, with a potential softening in Q1 of 2022.
Bottlenecks at Ports to Add More Volume to the Freight Market
Import volumes have been surging since late last year, and as we head into the second quarter of 2021, the trend is continuing. Well-above average imports have clogged up major ports throughout the United States—on the West Coast in particular.
Many cite the flood of products from Asia, labor difficulties due to COVID-19, and a shortage of warehousing space. Experts in the industry and the government predict the situation will not dissipate for at least the next six months.
“It’s pretty heavy. If we stopped bringing in cargo right now, we’d have a month’s worth of work ahead of us,” Port of Los Angeles Executive Director Gene Seroka told Transport Topics.
As congestion continues, more freight will be added to the marketplace, which could further strain regional markets’ capacity.
Trucking Capacity Could Get Increased Visibility
An initiative to keep an eye on in the long-term is an effort from a CPG group to expand domestic trucking capacity’s visibility potential.
The CBA proposed a federal group be created to monitor freight demand and capacity on a public level. The initiative comes in the wake of COVID-19 supply chain challenges that left consumers facing empty retail shelves as panic and increased buying depleted inventory reserves.
The proposal was included in a study released by the group that finds that “transportation accounts for the largest share of order cycle time variability in most supply chains, thus affecting inventory levels, stock-out costs and on-time delivery.”
Whether this proposal materializes into a new federal committee or agency to monitor truck capacity remains to be seen. Still, the concern highlights the importance of choosing quality transportation partners for CPG shippers. An overwhelmingly significant portion of the variability in supply chains comes from the transportation process. Not properly selecting carriers equipped to meet the demands of critical retail customers can spell issues for your operation.
Choose Logistics Partnership to Navigate Freight Market in 2021
Trucking market conditions can change quickly. Regardless of how market dynamics play out, CPG suppliers focused on partnerships stand to win in 2021.
Quality logistics partners can offset market difficulties and help your organization ensure that your product is there for your end-customer regardless of where they find you.
Zipline understands the market forces in play for CPG shippers and can help mitigate difficulties while keeping your customers happy.
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