Logistics Industry Report – Full Truckload and Less-Than-Truckload
As most are aware, 2020 was a challenging year for everyone. While some businesses and industries were able to thrive, others needed to be creative in their ability to adapt and survive. One of the key takeaways from 2020 was how to prepare for drastic times and make sure if anything like 2020 happens again, we are all better prepared.
LTL General Rate Increases:
Most carriers implement annual GRIs for noncontractual freight to absorb cost inflation, including driver and dockworker pay increases and ongoing investments in tech and real estate. In 2021, driver recruitment and retention expenses represent one of the biggest cost headwinds for carriers. Fuel expenses have moved higher as well, but separate surcharge mechanisms are in place to capture fluctuations.
So far early in 2021, the majority of the increases are in the 5% to 6% range, likely indicative of tightening LTL capacity and a rate-disciplined environment.
LTL Carrier Pricing Trend:
More carriers are getting better intelligence around what they are hauling and how it impacts their costs. This will continue to push freight not ideal for LTL, small shippers especially, away from a model of base rate/discount and into blanket rates, most likely from brokers.
This in turn, will drive more development of dynamic and dimension driven pricing around carrier blanket/broker programs. Some carriers are already going down this cube and density path.
Regardless of where your current freight model currently sits, the industry is continuing to evolve which makes strong relationships with your carriers a critical path to optimal LTL pricing.
Update on the Purchase of UPS Freight:
Montreal-based TFI International Inc. has agreed to purchase UPS Freight for $800 million. About 90% of the acquired business will operate independently within TFI International’s LTL business segment under a new name, TForce Freight. UPS Freight’s dedicated truckload assets will merge into TFI’s truckload segment.
TForce Freight will continue to serve UPS’ ongoing LTL distribution needs, and UPS will continue to provide freight volumes and other services to TForce Freight after the transaction for a base term of five years. UPS Freight employees will go with the business to TFI.
Trucking Market for 2021
Up until two years ago, most companies have purchased a set amount of freight transportation via an annual bid process, and then modified that contract as needed as their freight demands increased or decreased. That changed in 2018, when capacity crunches and driver shortages took hold of the industry. Fast-forward to 2020, and the annual bid is once again proving useless as companies scramble to secure capacity at the right price and with the best possible terms. The market is going to go up and down, so trying to reap the benefits in each of these peaks or valleys just doesn’t make sense long-term.
Both shippers and providers have also come to realize that all freight isn’t the same, and that it shouldn’t be treated as such. For example, every company should have a portfolio of ways of interacting with the different carriers. If you have a lane that ships once every quarter, you’re not going to have the same relationship as a lane that has 20 loads a week or 10 loads a day.
Shippers and carriers are both recognizing the need to look at the entire network and all the different lanes that they’re trying to secure a relationship with. Then, they can decide what part of the continuum will work best—spot, dedicated or some form of contract in the middle
Many large companies have failed to invest much capital into the building and automating of robust transportation systems
That changed when the global pandemic came into view and began disrupting the world’s supply chains, making transportation much more than just a necessary evil. And while the pandemic as a whole has exacted a steep toll on human lives and livelihoods, it’s also pushed more organizations to rethink how they manage their logistics and freight operations.
Companies are realizing it’s a must to invest in technology and automate transportation-related processes. The automation of freight management should continue to grow over the next few years. Artificial intelligence will play a bigger role in this evolution by providing shipment visibility, exceptions management, and risk management tools that address issues like weather and traffic.
Whenever you can take a handwritten bill of lading, digitize it, and then report on it in a matter of seconds, it gives a shipper the best chance for a successful and efficient supply chain and logistics network. As these and other advancements become more prevalent in freight management, they’ll dramatically drive down the costs and improve efficiencies across the board.