By John Lipscomb
According to experts, high freight costs are expected to remain throughout the year due to market turmoil.
"Although we probably peaked in December, for the first quarter and even the second quarter, we are likely not going to observe any deterioration in the rate of the environment at all," Avery Vise, the vice president of trucking research at FTR Transportation Intelligence, spoke to Transport Topics.
According to FTR data, the total truckload rates all year round are about 12% higher. They are projected to grow 2.5% to 3% across the year. This compares with a 14 % rate rise for contracts and a 29% increase in the spot market. However, general year results might stabilize towards the end due to a surge in rates last year.
In the middle of 2020, the recovery was quick to the actual levels we were at before the pandemic. However, in the second quarter of 2021, we experienced a massive rate increase. Thus, we will likely encounter more stability as we go through the year.
Cowen Research and AFS Logistics produced a freight index report projecting the truckload rates to be 28.2% higher per mile this quarter compared to January 2018. The baseline was selected since it was a normalized freight market that was not influenced by the COVID-19. It compares to 25% higher in last quarter 2021.
"Considering what the market is broadly facing, this record level of 28.2% above the 2018 base didn't get us by surprise," said Tom Nightingale, the AFS Logistics CEO.
The AFS Freight Index also observed that truckload rates would be 35.8% higher compared to the baseline while being level with the previous quarter. The Ground parcel rates are projected to be 26.3% higher than the baseline and 19.2% in the last quarter.
"Currently, there is still high demand out there, and you are not acquiring the high capacity to come back to the market," stated Jason Seidl, Cowen analyst.
The Index recorded general rate increases (GRIs) from LTL and parcel carriers the previous year and strong truckload pricing power assisting in driving rates.
According to Ronnie Davis, Vice president of North American surface transportation at C.H Robinson, the price of truckload capacity increased in mid -December. It then ticked up more than expected during the holidays. January seems not to deliver the seasonal decline we would experience in a typical environment. Although the spot rates were projected to rise by 4% year-over-year in 2022, the lead economist adjusted his forecast to 6% growth.
Davis explained that the first quarter and the start of the second quarter are likely to contain more growth since truck drivers were relatively slower returning after holidays. The omicron variant seems to sideline drivers pushing more freight into the spot market.
Avery Vise has no anticipation that spot rates will curve downwards since utilization is still at the peak, there are capacity problems, and the market is stressed.
DAT report indicates freight costs that spot rate market volumes are 80% higher than last year's. However, the freight volumes, in general, are flat. With freight loads harder to get, using a proven shipper list is essential https://www.nationalshipperlist.com/
By John Lipscomb