Shippers brace for higher truck rates amid ‘everything shortage’

Amid what one trucking analyst calls “an everything shortage,” shippers enter 2022 with heavy volumes of truck shipments bracing for continued higher ground freight rates.

Those rates can run in the double-digit percentage increases—on top of 2021’s increases. Those increased freight rates tended to be upward of 10% for shippers whose freight did not match carriers’ needs in this sellers’ market.

No matter what else happens in 2022, the need for speed is paramount for both shippers and carriers. But contrary to popular belief, shippers are not without weapons in gnarly rate negotiations with carriers.

While those increases could be common for shippers whose freight tends to cause carriers wasteful effort such as excessive wait times at docks, freight experts say shippers can control some of their rate destiny.

“All shippers can avoid the majority of these rate increases if they committed themselves to eliminate time-wasting procedures in their supply chains,” Satish Jindel, principal of SJ Consulting, Pittsburgh, told LM. “Those delays are causing carriers to lose money. Which, in turn, is causing them to raise rates on shippers. But it doesn’t have to be that way.”

Of course, that could be easier said than done. But experts agree that shipper intransience is a huge factor when carriers rate their customers.

There are several other factors at play as carriers decide what rates they will charge their accounts entering 2022. Among them:

• overall caps on trucking capacity. The driver shortage is chief among them, but not the only one, analysts and executives say;
• limits on the number of Class 8 heavy trucks available on the market. Experts say the stress on original equipment manufacturers may not ease until late 2022; and 
• supply-demand equation tipping toward carriers. After a decade of that equation favoring shippers, it’s the carriers’ turn to dictate rates and capacity

The rate increases are most visible on the LTL side. That’s because truckload shippers unable to move all their freight under contract turned to the spot market. That caused one-way TL rates to be off slightly, according to analysts. As diesel prices rose over $3 a gallon, intermodal moves via rail became more attractive to some long-haul TL shippers.

But LTL freight tonnage was up nearly 8% for 2021, compared to a 1.1% decline in 2020. The surge in “mid-mile” and “last-mile” deliveries favored the LTL carriers over TL, analysts said.

Even White House officials have noted supply chain issues as a contributing cause for inflation to be almost triple the 2% per annum rate that the Federal Reserve considers normal inflation for a year.

“We anticipated the market would be more open”, White House Council of Economic Advisors Chair Cecilia Rouse recently told the Wall Street Journal. That’s because the nation is in the worst supply chain shortage since some goods were rationed during World War II.

The Biden administration “just didn’t fully appreciate that the supply system, the supply chain, wouldn’t be able to process through the elevated demand for durable goods,” Rouse said.

This has caused what ACT President Kenny Vieth calls “an everything shortage” in the national supply chain.

He said supply chain constraints currently hampering heavy truck production extend far beyond the well-publicized computer semiconductor shortages. Rather, he said recently, they are “pandemic-driven failures in a globally reliant web of interrelated supply chains.”

Rebuilding complex global networks requires the system to recover at roughly the same speed, which it is “decidedly not doing at present,” Vieth said recently.

The heavy truck industry has been stuck in neutral for nearly all of 2021. That’s largely because there have been more than 24 product components experiencing late or partial deliveries this year.

At some point, analysts said, the trucking industry will recover. When is anyone’s guess. But for sure there will be enough pent-up demand to support heavy Class 8 production for all of 2022—if components are available.

In 2022, the supply chain should unclog. Whenever that is, there will be strong pent-up demand for everything—but especially Class 8 heavy trucks. That’s because trucking moves 80.4% of all freight by revenue, according to ATA’s freight forecast.

In 2020, trucks moved 10.23 billion tons of freight—down from 11.84 billion tons the previous year.

The industry collected 80.4% of the nation’s freight bill, unchanged from the previous year, while generating $732.3 billion.

Trucking employed 7.65 million people in industry-related jobs, including 3.36 million professional truck drivers.  Women made up 7.8% of the nation’s drivers—an all-time high—and minorities account for 42.3% of truck drivers.

Some 91.5% of fleets operate six or fewer trucks, and 97.4% operate less than 20. Trucks moved 70.9% of the value of surface trade between the U.S. and Canada and 83.8% of cross-border trade with Mexico, for a total of $695 billion worth of goods.

Experts predict supply chain woes to lessen throughout 2022. Original equipment manufacturers (OEMs) will increase their heavy truck build rates each quarter, officials estimated. But those OEMs will not be able to rapidly increase production due to component and parts shortages and labor scarcity.

Transportation continues to be at the top of the list of jobs people are quitting at a high rate.

“The pandemic is in still in the driver’s seat,” said Daniel Zhao, senior economist at the job site Glassdoor, told the Washington Post. “A lot of people think the Great Resignation is about burned-out office workers, but it’s really about these front-line service workers in jobs where there are a lot of COVID risks and also a tight labor market.”