Anyone who has been paying attention to the transportation of goods has noticed delays in their own shipments, headlines in mainstream media paying attention to supply chains, and a general heightened awareness of how goods get from point A to point B. There are a number of factors that determine the tension of the transportation market—from available truck drivers, to winter weather having a ripple effect, to consumer demand increasing, and the global pandemic shifting priorities.
Seasonal factors that cause the transportation market to tighten, plus new considerations for 2021
Historically, seasonal events bring demand. In a market where base market tension is higher than average, the market can expect to experience tension at higher than average levels during each event period. A few additional stressors factor into the equation this year as well.
Seasonal events that cause the market to tighten each spring
The DOT Road Check Week is May 4–6 this year, a month earlier than usual. In looking at 10-year averages, this three-day event causes the load-to-truck ratio to spike for more than just the days of the event, as many drivers chose to be off the road or are put out of service to correct violations resulting from inspections. This effectively reduces active capacity in the network.
Overlapping with DOT Road Check Week is the beginning of produce harvest season. In an average year, produce harvest season influences spot market pricing for van nationwide upward 5-11%. This year, starting at a point of tension, we might expect the upper ends of this boundary. A contributing factor is inventory build ahead of the summer food and beverage season that begins with Memorial Day.
Finally, the retail industry inventory-to-sales ratio continues at very low levels. We believe this to be an all-year effort of the retail industry to restock. ACT Research estimates that roughly 3% of the truckload demand forecasts for 2021 can be attributed just to replenishing the inventory gap, and it will take much or all of 2021 to accomplish this.
How the stimulus is an extraordinary event creating freight demand
In addition to a tight year and normal cyclical events, today’s truck market will receive additional freight from three stimulus packages. The amount of freight is not perfectly clear, but all models are working to include anticipated consumer, commercial, and governmental spending. Demand growth does not have the same constraint as supply growth. Supply can’t grow at the same level due to the structural limitations of Class-8 truck manufacturers. As such, the order backlog of new tractor supply is growing, and new tractors ordered now will be delivered well into 2022.
The state of the multi-modal trucking marketplace from 2020 to now
The COVID-19 headwind continues to be on the the supply side. Trucking labor challenges for both truckload and less than truckload (LTL) and supply chain issues for computer chips and other components are also disrupting the automotive supply chain, affecting the ability of Class-8 OEM’s (the typical 5-axle tractor-trailer combinations) to manufacture tractors at full capacity for the first half of 2021. The North American surface transportation marketplace was oversupplied as we entered 2020. The unintended consequence of the COVID-19 wave on federal relief funds and cascading issues as a result of COVID-19 health concerns, resulted in the reduction of 94,600 trucking jobs according to the Bureau of Labor statistics (BLS). Here are other factors contributing to the current state of the trucking labor market:
- Most of the jobs that returned are in the short haul and specialized segments of trucking, leaving long-haul trucking struggling the most to recover.
- As of February 2021, the U.S. was still down ~3% on trucking jobs from February 2020.
- LTL is also experiencing about 2.2% employment shortage compared to Jan 2020.
- Key driver demographics are in a divergent course with a rise in retirement through 2025 and decline in 21-year-olds through 2023.
Trucking jobs are slow to return
The market expects to see continued upward pressure on driver compensation and bonuses needed to seat the expanding fleet and counter the primary driver demographic trends. We have also confirmed this through voice of carrier surveys and business review conversations. In addition, our carriers report increased focus on shippers of choice, short haul lanes, dedicated fleet strategies, and recognition programs for drivers.
We believe there are challenges to the return of trucking jobs because of four main reasons:
- There have been a number of early retirements, likely of the aging population of drivers who either want to avoid the additional stress and complexities during the pandemic, or they are in a position that would compromise their health and wellbeing if exposed to COVID-19.
- Many truck driving schools are not yet at full capacity, so we know there are not as many new drivers as there could be entering the workforce.
- The Drug and Alcohol Clearinghouse simplifies background checks and may be finding more drivers ineligible currently for employment.
- Increasingly impactful is the growing popularity of local driving jobs related to ecommerce as well as construction and warehouse jobs competing with long-haul trucking as an occupation.
The winter weather is having a delayed impact on supply and demand
The severe winter weather in February that impacted most of the country was material to the transportation market. Origins and destinations were shut down, roads were closed, and the timing caused a compounding effect and backlog as trucks were out of position. This resulted in high load-to-truck ratios on DAT at the end of February at over 10:1 nationwide, and the averages the previous two weeks being 6:1 or higher. This lagging effect carried well into March as all surface modes struggled to catch up with the bottle neck of freight and capacity.
How economic growth may impact available truckload capacity in the coming months
The U.S. economy is expected to rebound in 2021, especially as more Americans get vaccinated and market participants resume some semblance of normalcy in their actions. The current forecast is for 6.8% annual growth in 20212. Other GDP forecasts for the U.S. have moved from 5% to 6% in February with Goldman Sachs estimating 8% on March 153. These optimistic forecasts are a derivative of economic recovery, multiple stimulus packages, and rising consumer sentiment. The net result for freight demand is growth in three key segments: retail, housing, and manufacturing, with analyst forecasts ranging between 8-12% growth against 2020 truckload volume. This demand recovery is pinned against a Class-8 tractor supply that is forecasted to grow only about 1% in the first half of 2021 and likely 5% in the second half for a net 2021 year over year growth of 3.5%4.
Consumer demand influences in 2021
Retail is one of the leading indicators of freight demand. Inventory replenishment is proving very difficult for the industry with an elongated effort that is not bringing ratios back up to where they previously were. Retail will play a more important role in the 2021 freight story than previous years. With retail and housing exceptionally strong, and industrials also coming back strong, prolonged freight demand strength is the consensus forecast of the analyst community.
The industrial economy is recovering, as shown through 8 months of the PMI above 50. There’s also potential for an infrastructure stimulus package later in the year as a result of demand exceeding supply. LTL and intermodal are experiencing freight drifting from truckload and vice versa as carriers are choosing freight that contributes to highest yield opportunities by offering pricing signals of what freight they prefer to move.
How to succeed in a tight trucking market
C.H. Robinson can help you manage the dozens to hundreds of small carrier relationships required to access the capacity you need. Nearly all growth came from carriers in the two smallest size segments with roughly 80% of growth within the smallest segment.1 We aggregate this fragmented market into a simplified experience, weeding out poor performers and bringing you reliable capacity. I shared 5 ways you can help mitigate effects of a tight market in a recent blog.
To dig deeper into how C.H. Robinson can help and to view our transportation offerings, visit chrobinson.com.
(1) MCMS Motor Carrier Master Information System. Federal Motor Carrier Safety Administration’s (FMCSA) dataset of carrier registrations. Carriers Included: For Hire, USA 48 state, active status. Carriers Excluded: Bus companies, LTL carriers, parcel, government vehicles, private, interstate only operating authority, waste haulers, forwarders and brokers (audit performed on carriers of 400 tractors and greater)
(2) Source: NAM March 3/29/21 Monday economic report
(4). ACT Research Freight Forecast March 2021