October 2 2020

2021 Freight Market Outlook


In conjunction with Stifel Transportation & Logistics Equity Research, Sunset presents insight into the Q4 2020 and 2021 freight market, capacity, and COVID-19 impacts.


The remainder of 2020 and 2021 look to be more complex with a fast-paced shift occurring in how freight moves across domestic and international markets. From a joint discussion between Sunset Transportation Directors and Stifel Managing Director of Global Transportation and Logistics, David Ross, we’re sharing the following highly prevalent trends and insights as our customers face budgeting season and strategic shifts in their logistics.

What we know:

  • Shippers should anticipate somewhat of a freight recovery after October 2020 based on data presented (right).
  • COVID-19 changed everything about freight movement, and it did so at an incredibly rapid speed. Shippers should understand all sides of their freight shifted:
    • Different freight is moving, essential goods took over and non-essential goods took a backseat.
    • Different destinations; big box lanes surged.
    • Different modes; ocean to air, more parcel, TL to intermodal.
    • Last mile strategy is now a MUST for shippers.
    • Limited TL capacity has been a huge factor in rising shipping costs; drivers now at home with remote learning, Drug & Alcohol Clearinghouse implementation has cut driver numbers, and retirements are happening without new drivers coming into the workforce.
    • The shift to digital platforms was swift and now necessary for success; ecommerce has shifted strongly to “Buy Online Deliver From Store” (BODFS).
    • Consumer spending grew in summer 2020 because people were at home, and will continue into Q4. 
    • The speed at which they shifted was quicker than anyone has seen in freight in recent history, and all factors occurred at once.
freightoutlookscreenshot

2021 and beyond:

  • Expect a growth in freight volumes in 2021; goods production will recover and more products will flood the market.
  • Intermodal volumes are expected to help compensate for truckload volume squeezes.
  • Truckload spot prices are expected to surge.
  • Contract bids are being reconsidered, but shippers should understand that the market is driving higher costs.
  • LTL follows TL spikes, however there is a constricted market and because demand is so high and capacity is low, there’s a crunch happening.
  • Freight demand will be inconsistent in 2021.  Air travel and dining expenses may cause an additional disruption that will weight on demand.
  • U.S./China regulatory issues still remain and unfold with an election year in 2020.
  • Transportation costs will increase due to smaller fleets not adding capacity and spot rates will continue to rise.
  • Ecommerce and rapid consumer delivery expectations will continue to impact freight costs and availability.
  • Shippers should be preparing MULTIPLE scenarios for a freight “recovery”.  We could be back sooner OR later than the experts are saying.  Prepare for both.
  • SERVICE WINS, and vendor reliability reins king/queen.

Q&A

Q: Have you seen capacity come back into the markets since the initial outbreak of COVID in April/May?

Stifel says:  Less companies than you think actually parked trucks in April/May in an effort to keep drivers working.  Drivers are actually be MORE incentivized to drive now to fill these needs but the shortage is still present due to the factors discussed earlier. The driver shortage is more of the issue causing the capacity crunch.

Q:  2021 truckload budgets are being done right now – what is the recommendation for industrial TL customers/shippers for next year?

A:  Shippers should assume that fuel prices are going up next year due to getting back to normal.  For contract truckload customers, 2-5% yield rate increases are forecasted as a reasonable assumption.  To be safe, expect TL rates to be up 5-7% and fuel rates to be up 3-4%; so roughly an 8-10% increase for freight budgeting. 

Q:  When you have international carriers coming into MX, with less and less US trailers coming into the country, based on your knowledge, will national carriers bring this back or should we expect less and less trailers coming to MX as a continuing trend?

A:  US/MX trade is expected to grow over near future.  With US and MX automotive plants coming back we should see recovery.  If/when freight is there, we will see it coming back. 

Q:  We’re hearing networks and carriers are flooded, nothing is on time, terminals are clogged.  What is the LTL budgeting advice you’d give?  What is the expectation? 

A:  September LTL numbers will be better than in months past.  LTL volumes are expected to grow due to smaller final mile and ecommerce usage.  LTL is a traditionally steady mode; LTL could be up 3-5% in volumes for 2021, if truckload is around 8-10%.  This isn’t great for customers who are dealing with on-time percentages in the 60s.   More crunch should be expected.  However, shippers should realize that LTL is guaranteed capacity and a safety from volatility, in theory.  Savings should be kept in perspective; it would be more expensive if you’re a small shipper to go TL or Parcel. 

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