For shippers, 2020 was like riding a roller coaster with no way to get off. In the first half of the year, panic buying drove supply and demand imbalance across the supply chain and caused truckload capacity to tighten. During the second half of the year, consumers shifted their spending from in-store to buying online, and sellers had to adjust their warehousing and fulfillment networks. The e-commerce surge tightened truckload, LTL, and small parcel capacity, delaying deliveries, and driving up rates.
The volatility of 2020 and the uncertainties looming into 2021 make it difficult to forecast planning and budgets based on historical data. However, some market trends that became significant factors in 2020 will likely continue. For example, online shopping will grow faster than expected, and consumer behavior may shift in response to ongoing pandemic-related challenges. That trend also plays into an extended peak shipping season and ongoing tightened capacity in all modes.
To help shippers prepare, we will examine contributing factors that will play a significant role in the 2021 truckload freight market.
Consumer Spending Shifts Will Continue To Impact The Truckload Freight Market
Consumer spending has shifted from the service sector into other industries, causing rising truckload rates and tightened capacity. People are spending more time at home and spending more money on furniture, pets, and home baking to make their environment more comfortable. Many furniture manufacturers reported lengthy delays for build-to-order pieces due to reduced workforces and difficulties in sourcing fabrics and components.
A pet-buying spree drove sales of dog food and other pet supplies, as people adopted pets to keep them company during the lockdowns. Like toilet paper, dog food saw a massive spike in sales in both brick and mortar and online channels that created challenges. In a recent FreightWaves article, JJ Lewis, Vice President of Enterprise Sales, explained how GlobalTranz’s client, a large pet supply company, was forced to adjust their supply chain strategy to meet a 300% increase in freight volumes. Due to the limited number of plants producing dog food, GlobalTranz’s client had to reallocate shipments to other warehouses. Rapid shifts in sourcing increased shipping spend and left routing guides useless for meeting demands.
Home baking was another trend that tightened capacity. Consumers snapped up kitchen essentials like butter as they tried bread recipes to pass the time. The fourth quarter holiday season typically brings an uptick in butter volumes, but thanks to the pandemic, that surge came several months earlier. Retailers usually sourced two to three truckloads of butter a week but sold as much as 10 to 12 truckloads during peak baking season.
Those unexpected surges meant forecasts were worth as much as the paper they were printed on. Some retailers shipped products as soon as they could get it, overstocking stores to meet demand and avoid stock-outs.
Shippers planning their 2021 transportation strategy should prepare for additional waves of panic buying with a plan for pulling freight forward to meet consumer demand.
The Truckload Capacity Crunch Will Continue Into 2021
Truckload shippers need to prepare for capacity shortages to continue in 2021. E-commerce is predicted to continue to grow, placing strain on small parcel networks that struggled to keep up with demand in Q4 2020. Additional drug testing regulations could impact the driver ranks, leaving some carriers without enough qualified drivers to operate their fleet.
Several truckload carriers declared bankruptcy in 2020, further tightening capacity on top of a record number of carriers filing in 2019. Developing long-term relationships will be essential to securing capacity from carriers facing challenges.
The rollout of the COVID-19 vaccines may disrupt the supply chain with a massive national effort. Any temperature-controlled commodities could find truckload capacity to be elusive during the vaccine surges.
Truckload Rates Will Continue To Increase in 2021
Another sure prediction is that shippers should anticipate higher U.S. truckload market rates in 2021, with experts predicting rates increasing as much as 10%.
At GlobalTranz, we anticipate that shippers would rather pay higher rates with contractual carriers than go to the spot market. Shippers want to maintain their routing guides to ensure service levels are met rather than shaving a few cents a load with unfamiliar carriers. Even with contracted rates, expect continued volatility in the market, especially if rates skyrocket and carriers focus on the spot market.
The boom in direct-to-consumer delivery and buy-online, pick-up-in-store (BOPIS) fulfillment will drive retailers to rethink their inventory strategy. Rather than focus on regional D.C.s, smaller, more nimble locations can respond to customers faster. Brick-and-mortar retailers may reduce their store replenishment routines to keep more inventory on hand to feed other channels. Some retailers will adapt space in stores for fulfillment rather than using outsourced sites. It may make sense to push inventory closer to the consumer whenever you have the chance to lessen the chance of running out.
Tips for Controlling Truckload Freight Costs in 2021
Consider these proven tips to manage your truckload spend in the coming year.
- Extend 2020 terms for high-performing incumbent providers to manage churn
- Utilize drop trailers for high shipment volumes
- Consolidate shipments to increase volume
- Contract consistent freight volume
- Decrease length of haul
To prepare your supply chain for a volatile environment in 2021 and beyond, connect with a logistics provider with proven experience and technology to maximize your transportation budget. GlobalTranz can help position you for success through a collaborative and accountable relationship focused on delivering a positive impact for your business.