North American Freight Market Insights

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Transportation Market Overview

TOP STORY: Truck manufacturing contributes to a longer than expected cycle of tension

These truly are unprecedented times, and our current market is no exception. The following report offers a broad perspective on the historical singularity of this market and why it’s making forecasting so difficult. One force shaping the unprecedented market is the impact of the semiconductor supply chain on Class 8 tractor production. There is sustained tension caused by robust freight volume forecasts and a drop in new truck manufacturing. To fully understand the impact this issue—and a host of others—has on the current market, we begin with the four-phase market cycle and our current phase: tension.

In the United States, surface transportation follows a four-phase market cycle. Supply and demand move through periods of tension, transition, slack, transition, and back to tension.

Analysts continue to forecast that the current tension phase in the U.S. truckload market will be longer than most cycles—starting in the first half of 2020 and continuing into Q1 or Q2 2022.

This cycle most commonly takes 3–4 years. Analysts continue to forecast that the current tension phase in the U.S. market will be longer than most cycles—starting in the first half of 2020 and continuing into Q1 or Q2 2022.

The interplay of surface transportation modes
Typically, the truckload market often receives the bulk of the market conversation, but this continued market tension means the less than truckload (LTL) market is equally impacted.

Class 8 tractor and labor insights apply to both truckload and LTL. Headlines include:

  • Long-haul truckload employment grew 2,200 jobs from January to February, but are still down 3% from February 2020 (pre-COVID-19 comparison). Source: ACT April 2021 Freight Forecast and JOC
  • Key trucking employment demographics of 21-year olds and 45- to 65-year olds are both contracting. Source: ACT and U.S. Census Bureau
  • Manufacturing of Class 8 tractors is constrained by the semiconductor industry shortages. Less than 1% growth in the fleet for the first half of 2021 and a net 3.5% increase is forecasted by year end. Source: ACT
  • Truckload freight volume forecasts are 8–12% year over year (Y/Y). Sources: FTR, ACT, Cass
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Full Truckload Shipping

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 and demand

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. | C.H. Robinson

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 over the past 10 years.

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

Load to truck ratio for Roadcheck

Spot market, committed market and capacity insights

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

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.

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.

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

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.

Temperature controlled shipping

This month marks the beginning of two key market segments for refrigerated truckload and LTL: produce harvesting and summer picnicking and grilling.

Refrigerated transport continues to grow in demand as consumer preferences are increasing for fresh foods. C.H. Robinson anticipates the balance and pricing pressures in the temperature controlled space will be heightened more than the dry van segment.

Typically, capacity is attracted to the high pay of produce loads, accordingly capacity follows the growing season. Due to the exceptional tight truck market this year, C.H. Robinson recommends all shippers be mindful that capacity and pricing will likely be impacted.

Produce season
Produce season is slightly delayed from the southern winter storms, but planned volumes are consistent with previous years.

  • Forecast for most impacted truckload regions include: FL, GA, TX, and CA.
  • Leafy greens and vegetables have fully transitioned from Yuma, AZ, to the Salinas, CA, region.

Floral surge
The Mother's Day seasonal flower surge is primarily out of FL, TX, and KY. Expect it to begin April 30, 2021, and last through May 9, 2021. Note that the DOT Road Check overlaps with this event for the first time.

Flatbed

Key industries for the flatbed market are experiencing high demand. Against a fleet that does not historically grow as fast as the broader van market, we recommend additional lead time on orders to gain the best cost and performance opportunities.

  • Housing: Strong growth supporting new construction and lumber for the do it yourself (DIY) retail sector.
  • Oil and gas: With oil prices rising, increased project activity in well fields brings in piping, rigging, and pumps.

The first H1 2021 demand exceptional high against stagnant supply puts the current DAT load to truck spot market ratio at 79:1 against a five-year average of 29:1.

Cross-border shipping (Canada and Mexico)

Canada
Canada and the United States enjoy a trade relationship where carriers on both sides of the borders can transport across country lines for delivery and bring loads back across the border.

Today's environment has a few influencers on cross-border trade:

Electronic logging device mandate
The electronic logging device (ELD) mandate in Canada, scheduled for June 12, 2021, is considered an educational rollout for 12 months. Penalties for noncompliance will not be issued.

  • There are not any "certified" ELD devices available to the carrier community yet; but multiple companies have submitted their certification request. Source: Truck News
  • Carriers report they are waiting to see what devices are certified before they make purchases and implement the devices.
  • C.H. Robinson does not expect significant capacity limiters during the educational rollout:
    • 100% of trucks crossing the border are compliant with U.S. ELD compliance laws. This community is likely the first to comply as they are familiar with operating under an ELD.
    • To maintain maximum capacity availability, C.H. Robinson will work with contract carriers to ensure they understand the 12-month educational period.

Imbalanced capacity caused by northbound volumes
Northbound volumes are increasing, creating greater imbalance of capacity. This means there are northbound cost increases to offset empty returns to the United States.

  • Produce harvest season in the United States generates northbound volumes to Canada.
  • The Canadian dollar is trading close to $0.80 to $1.00 U.S. Dollar, leading to greater purchasing of U.S. goods.

Be mindful of the capacity imbalance and build additional lead time into the planning process. Consider shipping days of Saturday-Monday departures from Canada to avoid shipping north from the United States on Tuesdays as there is always limited Tuesday capacity.

Mexico
The heightened freight flow imbalance of the past 11 months between Mexico and the United States continues. This requires participants in truck and rail transport to plan for greater lead time and continued higher pricing.

  • Northbound loads still greatly outnumber southbound, requiring added costs to reposition equipment for northbound loads and resulting high costs.
  • Laredo, TX, is the largest crossing point and continues in the range of 16 loads to one truck on the DAT spot market.
  • Lead time remains critical for northbound capacity. C.H. Robinson recommends four days in advance to help manage costs and access capacity.
  • Produce harvest season has started, exacerbating the situation at Nogales, Laredo, and McAllen, as crops draw capacity at high prices.
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Intermodal Shipping

TOP STORY: Demand is outpacing supply and assets are not where they need to be

The intermodal experience aligns with the broader transportation market and even the global ocean and air markets in that demand is outpacing supply and assets are not where they need to be.

  • Container placement challenges continue in high demand markets—port cities and U.S.-Mexico border areas are under supplied.
  • Containers are being used as storage rather than transport.
  • Dwell time for unloading seems to be increasing.
  • The Union Pacific railroad is the first to offer peak season surcharges. This is well ahead of the normal August/September historical market pattern.
  • Chassis shortages are reported across the rail networks primarily caused by the very high volumes of ocean container imports.
  • Drivers for the dray community are included in the broader trucking labor challenges, leaving some dray carries with unseated tractors.

C.H. Robinson continues adding to our dray carrier community, working with railroads to increase access to containers and train slots, converting truck shipments to intermodal that help reposition empty containers in deficit markets.

Tension will likely continue into the second half of the year. We recommend smoothing out shipment volumes, employing drop trailer programs, and taking advantage of the cost effective deficit lanes by converting truck to intermodal.

Less Than Truckload (LTL) Shipping

TOP STORY: LTL market facing labor shortages

Labor is a challenge for LTL
Historically, the LTL industry has experienced fewer challenges with hiring drivers than the truckload segment since drivers have the opportunity to be home frequently.

It is not uncommon for truckload drivers to see LTL as a good last job after being a truckload driver. As such, LTL has a slightly older driver population than full truckload. Today however, that means more drivers are retiring—especially now with reports of early retirement related to COVID-19 exposure.

In January, the LTL industry was down 2.2% on employment Y/Y according to the U.S. Bureau of Labor Statistics. In addition to drivers, the LTL industry is struggling with crossdock workers and longer training periods for new drivers. The added training around load builds, maximizing cube and weight, and staging trailers for stability through the daily pick and delivery process extends the time of getting a new hire to full productivity.

LTL & Consolidation

LTL tonnage forecast
Demand forecasts for LTL are robust with Q2 at 7.5% growth quarter over quarter. Year over year growth for 2021 is at 9.9% according to ACT Research.

Like truckload, LTL has a smaller fleet that is striving to add some capacity. Key to volume the past 12 months has been ecommerce middle mile transport. As industrials return, LTL carriers will send pricing signals of what freight they want and don’t want, as there are freight options to choose from.

The North American LTL network has evolved to meet ecommerce opportunities, whereas the industrial sector leans a bit to the Midwest and often provides good palletized freight. Expect LTL carriers to adjust pricing in ways that help them achieve a freight and lane mix that brings increased balance and yield assurance.

  • March’s ISM's PMI continues with its highest value in years at 64.7.
  • California Eastward lanes are experiencing the greatest delays associated with high import volumes.
  • Transactional shippers may be struggling with certain carriers. C.H. Robinson offers a portfolio of LTL carriers to help shippers secure capacity.
  • Carriers are declining large shipments. Consolidation in the middle mile can help serve larger partial load shipments.

Pricing in the LTL industry
Sustained supply and demand tension means elevated growth of LTL rates. That said, pricing experiences will vary based on freight attributes and pricing approach.

Rather than relying on transactional pricing strategies, many shippers now seek a finite carrier strategy with contractual pricing in an effort to bring greater stability to capacity and costs.

FTR Transportation Intelligence's April report shows their contract LTL rate outlook. This forecast estimates 9.4% Y/Y increase for 2021 with some stabilization currently forecasted for 2022.

FTR Transportation Intelligence's April report shows their contract LTL rate outlook. This forecast estimates 9.4% Y/Y increase for 2021 with some stabilization currently forecasted for 2022.

Small Parcel

In 2020, ecommerce sales grew by 32.4% Y/Y, affecting all modes of surface transportation. The number of parcels shipped in 2020 is estimated to be at least 132 billion, up from 103 billion in 2019. Source: Digital Commerce 360

Pitney Bowes estimates that parcel traffic could surge to 316 billion packages by 2026. This growth is not only going to come from consumer ecommerce orders, but according to Gartner and DHL, 80% of all business to business sales by 2025 will take place through digital channels. Source: Parcel and Postal Technology International

Key market insights related to parcel shipping include:

  • UPS and FedEx announced that money-back guarantees on certain services have been reinstated. We recommend shippers work with their audit partners to immediately restart the filing process for service failures. Source: UPS and FedEx
  • Beginning April 19, 2021, the surcharge amount for some FedEx Express (parcel and freight) and TNT (parcel) shipments originating in the United States, select APAC countries, and India and destined to Australia, New Zealand, and additional APAC countries will increase.
  • UPS decreased their peak surcharges starting in February 2021.

Government and Regulations

No update at this time.

U.S. Economy

TOP STORY: Stimulus bills have resulted in almost unprecedented strong GDP growth

We’re expecting very strong GDP growth this year, in-line with Wall Street expectations of almost 7% growth. We believe this will translate into strong freight volumes as both retail inventory (chart below), and business inventories, which are currently low.

After taking a short pause in February, because of Freeze Storm Uri, the economic data continues to improve, close to pre-COVID-19 levels of economic activity.

Retail Inventory Levels – U.S. Census Bureau

Retail Inventory Levels—U.S. Census Bureau

The monthly Industrial Production from the Federal Reserve and the broad Retail Sales figure from the U.S. Census Bureau, are timely indicators for freight markets. Strong retail sales numbers continue in March—10% growth month over month (M/M). The year to date growth is 15% vs. December 2020 levels. We expect retail sales will likely remain at these elevated levels for the next six-months, driving further retailer inventory re-stocking over a longer period.

We believe the strength in retail sales so far in 2021 is primarily driven by the two recent stimulus bills. The chart below shows a surge in retail sales about a month after these bills are passed—when individuals began receiving their stimulus payments. However, the re-opening of the economy is also an emerging tailwind to growth.

Retail Sales M/M Percent Change and Stimulus Payments Timing

Retail Sales M/M Percent Change and Stimulus Payments Timing

We view the Industrial Production as a good proxy for the industrial/manufacturing side of the economy. The April growth of Industrial Production was more tepid than retail at 1.4% M/M, however this is likely not a demand problem.

Manufacturing in the United States has been challenged by broad supply chain constraints across the economy, the most high-profile of these being the semiconductor shortage. Industrial Production is still down slightly from December 2020 levels, but we do expect manufacturing output is expected to increase at a more gradual and measured pace each month compared to retail sales.

Industrial Production M/M Percent Change

Industrial Production M/M Percent Change

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