North American Freight Market Insights

TOP STORY: Anticipate imbalanced supply and demand into early 2022

Freight volume growth is rather exceptional and supply growth of both drivers and tractors have material limitations that prevent them from keeping pace. Over the coming quarters, supply will enter the market and growth pace will settle, lowering tension and eventually balancing the market.

Supply summary

• 3.5% Y/Y growth in the U.S. Class 8 tractor fleet for 2021 (e.g., for-hire, private, LTL, parcel, etc.). Source: ACT
• Nearly all growth will come in the second half of 2021 due to the semiconductor industry shortage currently limiting tractor production.
• Contraction in two key labor pools to trucking—21-year olds and 45- to 65-year olds—will be a challenge for years to come. Source: U.S. Census Bureau and ACT
• Anecdotal insights suggest that stimulus checks and extended unemployment benefits are keeping some drivers out of workforce longer.

Demand summary

• Federal COVID-19 stimulus programs contribute cash and goods to the economy.
• Retail inventory restocking will take most/all of 2021 to return to normal.
• Housing industry strength is key contributor to freight demand.
• Industrials/manufacturing return is also adding to freight demand.

Class 8 tractor manufacturing insights
By compiling data from ACT Research, we’re able to illustrate the current Class 8 production situation. In the bar chart below, the light blue line shows the lifecycle view of carrier orders for new Class 8 tractors. Manufacturing of tractors is represented in red and retail sales of Class 8 tractors is gray.

Notice in the outlined area titled "Past 12 months." Orders for new tractors dropped even before the economic shutdown associated with COVID-19. Carriers were curtailing orders in the latter part of 2019 and early 2020 due to the oversupplied market of 2019. Manufacturing of new trucks had also tapered. Retail sales were level, keeping the fleet at a relatively stable size or slightly contracted (i.e., it contracted about 3% in 2020).

The economic shutdown came with collapsing orders and builds while retail continued to hold a little above replacement level. As the economy recovered and freight demand accelerated, orders rose well above manufacturing capabilities—which is hampered by the semiconductor shortage.

Today, the combination of strong orders and low production ability has created a 12- to 15-month lead time from order to delivery of a new Class 8 tractor. It is anticipated that manufacturing will reach full production in the second half of the year, forecasting to produce a net increase of about 40,000 Class 8 tractors or about 3.4% growth.

This graphic offers perspective about supply’s inability to keep up with freight demand growth.

Roadcheck 2021

During DOT's annual three-day Roadcheck, law enforcement across the country puts forth a coordinated effort on trucking safety and conducts an increased amount of roadside inspections. Typically held in June and last year in September due to COVID-19, this year it will be May 4–6.

Historically, an undefined, yet meaningful percent of capacity take these days off to avoid the inspection hassle. Most capacity returns within two days after the three-day event.

Load to truck ratio (LTR), defined as loads posted vs. trucks posted on DAT’s trading platform, shown as a 10-year average.

For perspective, a load to truck ratio in the 3:1 or 4:1 are reasonably balanced periods. Below those levels are considered a loose or oversupplied market and above are considered tight or undersupplied market.

Load to truck ratio for Roadcheck

Aggregate U.S. national perspective (for week 16).

The van spot market was already at historical highs and then winter weather compounded the tension. Normally, Q1 offers less tension to start out the year. This year is atypical with such extreme market tension (the most similar year being 2018). It seems likely 2021 will be a year of greater than average tension, but how the second half of the year will unfold has analysts debating.

We recommend preparing for tension and volatility. Expect seasonal movement in truckload pricing with the year-end offering at a higher cost per mile than today.

Regional variance view of high tension in the U.S. truckload spot market.

Spot market truckload rate per mile forecast
There are many variables influencing forecasts for the second half of 2021. Freight volumes, Class 8 retail sales, driver hiring, vaccine use, herd immunity, and more are a few of the top influencers. Mathematically driven forecasts on truckload pricing for the end of the year will likely be wrong as there are too many variables and historical references are problematic this year.

Our forecast below for spot market pricing shows it moving through seasonal patterns but concluding the year about another 8% higher than current rates. Again, this forecast will change as variables become clear.

This chart, created by C.H. Robinson, is founded in DAT van spot market pricing data. The bottom dotted line shows a five year history from DAT of van load to truck ratios. The solid light blue line is the current year of load to truck ratios, showing remarkable tension compared to average. The dark blue solid line shows DAT's van spot market pricing history and the dotted line extension is C.H. Robinson’s forecast. Week 15 is shown to mark the current state.

Contract truckload environment
The spot market is a leading indicator of the broader and much larger contract/committed market. The contract market is managed in shipper, carrier, and broker transportation management systems (TMS), and not publicly available from spot market trading platforms, therefore, it is difficult to track its performance.

What follows are some perspectives and notes on today’s environment from TMC, a division of C.H. Robinson.

The chart above from TMC, A Division of C.H. Robinson reflects weekly route guide depth (RGD) regionally across the United States. A decrease in RGD means there are fewer rejection of tenders to the primary supplier (measured by first tender acceptance (FTA) and presented as a percentage of tenders accepted by the primary supplier), which in turn means fewer subsequent tender rejections to backup suppliers.

Route guide performance
Waterfall route guides are commonly used to manage awarded freight on lanes with some level of demand pattern predictability. The following insights are derived from a large shipper portfolio of diverse industries across the United States.

Route guide performance is often measured through several key metrics. RGD refers to how far into a route guide a shipper must tender shipments before loads are accepted, or the average number of tenders per load.

During the week of April 4–10, 2021, the overall RGD across all regions was 1.74, showing greater rejection of primary tenders and a need to go deeper into the route guide than the previous five weeks. Middle distance loads of 400–600 miles and loads over 600 miles have settled just below 2.0 on average across all regions with loads under 400 miles performing just under an RGD of 1.5.

In 2021, both the Midwest and Northeast are struggling with RGD. The February and March winter weather events added challenges to route guide performance regionally and nationally as the network is interconnected and no regions function in isolation.

First tender acceptance in North America stabilized in March 2021 around 83%, which is 5% lower than the 88% seen in March 2020. For perspective, March 2020 was a strong freight month as North Americans prepared for April's lockdown.

Voice of the carrier from C.H. Robinson
Every month we conduct business reviews with contract carriers. Here are some of the comments that are more informative of the current market:

• Stimulus and extended unemployment benefits seem to be reasons why drivers have not yet returned to work.
• Insurance continues to be cited as an escalating cost issue, and one reason carriers close down at time when pricing is elevated to a point that should sustain most carriers.
• Trailers are not readily available. Many shippers/consignees are sitting on loaded trailers and there are few to rent or purchase.

Ocean and air import volumes impact North American surface transportation
Loaded ocean containers in North America have not been unloaded and returned to Asia at the same pace as they were coming in, creating capacity issues in Asia and rapidly rising pricing. There is a similar situation with intermodal and truck trailers. Loaded trailers are trapped at businesses, keeping them out of rotation.

The current ocean environment offers these insights:

• Ports of Los Angeles and Long Beach continue to experience 20-plus vessels anchored, waiting for unload, which will create heavy demand for truckload, intermodal, and LTL for the foreseeable future.
• Retail inventory replenishment is central to the forecasted volume growth as retailers strive to get back to normal inventory to sales ratios.
• Ocean carriers are systematically limiting containers that move into inland locations due to lack of locomotive power and lack of chassis supply at inland ramps.

Global air services are not immune to market tension. Los Angeles and Chicago currently face significant demand and congestion. Expect longer turnaround time before freight is made available by the airline as well as longer lines for truck drivers waiting to recover cargo.

Proactive planning with ample lead time and annual commitments can help secure the best price and capacity for the next 12 months.

For a more holistic update on ocean and air in global trade lanes, please see our Global Forwarding Insights.