With all 50 states relaxing COVID-19 shutdown orders to various extents, trucking shipments and rates are heading back up – but don’t expect a true recovery until 2021.
For the week of May 18-24, truckload markets continued to follow seasonal trends, and load-to-truck ratios on the DAT network continued to climb as a result, according to DAT Solutions. That put pressure on prices, which rose going into the long holiday weekend as more and more businesses reopen.
“The demand for trucks has steadily increased throughout May, following seasonal trends that are typical for this time of year,” write Matt Sullivan on the DAT blog May 27.
“The upward trends offers plenty of reasons to be optimistic going forward. Last week saw some of the biggest increases since late March, with many shippers paying a premium to get freight moved ahead of the long Memorial Day weekend.”
National averages for van and flatbed rates are still below where they were in April, although refrigerated rates were up slightly, reported DAT. There are still many markets where truckload supply outweighs demand, Sullivan said. Hot markets, on the other hand, included Atlanta, Memphis, Houston, Los Angeles, Phoenix and Ontario, California.
Rates rose on 73 of the top 100 van lanes last week, the most since late March. The higher prices were a response to increased volumes on most high-traffic lanes. That once again included lanes out of major California markets. In Los Angeles, outbound rates increased another 9 percent week-over-week.
Look for 2021 rebound
ACT Research is predicting that the economy will transition from contraction to growth over the course of the third and fourth quarters. “Clearly the global economy does not have the luxury of waiting a year or two for a vaccine to be developed before the current solution itself becomes the greater risk,” said Kenny Vieth, ACT president and senior analyst. “Our forecast anticipates that the U.S. economy, as defined by GDP, will not return to its Q4’19 size until after 2021.”
It’s not easy to restart supply chains that were totally shut down due to the pandemic, Vieth said. “In the supply chains that support complex OEM-level assembly operations, from raw materials to finished goods, it is not just about opening one plant, but opening thousands of plants simultaneously, making tens of thousands of parts that go into those assemblies in an orchestrated fashion, all with new layers of safety and testing protocols in place.”
On top of that, he said, getting buyers to market is another challenge “when the economy has so recently cratered and going outside poses an existential risk.”
However, Vieth said, because the pre-COVID economy was “structurally sound… with strong Federal Reserve and Congressional support, and rising pent-up demand, there is a case to be made that the economy will respond strongly into 2021.”
Coyote Logistics is predicting a similar recovery. “Though we expect a steep drop once all Q2 numbers are in the books, we have likely already hit the bottom in Q2,” writes the third-party logistics provider in an article explaining its latest Coyote Curve forecast for the truckload market.
“We’ll see a slow recovery the rest of the year and then rocket into 2021,” with spot market truckload rates rising year over year in the first quarter of the year, said Chris Pickett, chief strategy officer of the third-party logistics provider and author of the Coyote Curve forecast, in a recent webinar. Coyote said it expects contract and spot rates to more or less converge from here, and an inflationary 2021 spot truckload environment (barring a major economic setback).
What Motor Carriers Should Do
As we come out of the trough, Coyote recommends that carriers:
- Have a solid understanding of what money is owed to you. Revisit outstanding accessorials and follow up with providers. Make sure the revenue you earned is actually getting into your account.
- Revisit payment terms. Even if you’re using a factoring company, look at how you are getting paid from each provider. Can you find ways to get paid faster to boost your cash flow?
- Reexamine your network needs. Things have changed dramatically over the past few months, and the usual lanes you used to run may no longer be valid. Make sure you have a clear understanding of what your network looks like today.
- Have a strategic call with your shippers. If you work with shippers, especially those that are not currently shipping, reach out to see what their forecasted needs are. Go beyond a what-can-I-get-this-week and try to get a realistic look into their supply chain needs for the remainder of the year.