The transport is market slowly clawing back capacity. We take a look at what is driving the higher rates. We also delve into what we can expect to see in the future.
Cass estimates that in 2021, the total freight expenditures of shippers were up 37% from last year. When you look from a per shipment basis, the rates for 2021 were up 23% from the previous year.
Higher rates, rather than higher shipment volumes, are the primary driving force behind these increases in freight spend. In the article below we take a look at what’s driving these rates so high. We also address what we can expect to see moving forward into 2022 and beyond.
What’s driving the capacity crunch in transport?
The main culprit behind the higher rates we are seeing across the supply chain is the COVID-19 pandemic. When governments began implementing public health measures in response to the pandemic, it sent shockwaves through the logistics industry. We will detail the key issues that are largely responsible for the rates we are currently experiencing.
Oil prices have fluctuated wildly during the pandemic. Producers and refineries slashed output at the onset of the pandemic to keep the price of oil from crashing. As governments lift their pandemic restrictions and global travel resumes, oil production has been slow to ramp up. This creates a textbook supply and demand cycle that drives up costs throughout the supply chain.
Driver and equipment shortages
A dual shortage of truck drivers and shipping containers is raising the costs associated with transport. There are promising signs that industry and government are working to address this issue, but the shortages of equipment and personnel are likely to continue to affect transportation costs for the immediate future.
Backlog at ports
The backlog of virtually all major shipping ports around the world continues to bottleneck many aspects of global supply chains. Everything from delays in unloading and loading ships, staff shortages, and long lines to pick up shipments is the main driving force behind the unprecedented rise in maritime transportation costs.
Extreme weather events
Extreme weather events like the flooding witnessed recently on the West Coast, or hurricanes on the East Coast mean road and highway closures. Severe storms can also wreak havoc on rail and air transportation as infrastructure is damaged or destroyed. This can have a knock-on effect for truck transport because drivers will need to complete more miles for a shipment due to road closures.
Consumer spending habits
The onset of the pandemic saw everything from hair salons, theatres, amusement parks, restaurants, and bars shuttering their businesses. This focused consumer spending on physical goods, instead of services. The result of this major shift in consumer spending habits — surging freight volume. This increasing volume consumed much of the available capacity on the market, driving prices up even higher.
The good news:
Transport companies are investing excess capital into their fleets and technology. The hope is these investments will improve efficiency and therefore increase capacity, with the aim of lowering shipping costs. The downside — increasing capacity takes time.
But there are some glimmers of hope. After an abysmal September (0.6%) and October (0.8%), the Cass Freight Index rose to 4.5% in November when we compare it with 2020. This is an encouraging sign that the freight industry’s efforts to increase capacity and remove supply chain bottlenecks is starting to see returns.
Ultimately, we are seeing a slow reduction in rates, and a slow uptick in capacity. Efforts made to reduce logistics bottlenecks across supply chains are starting to alleviate some of the pressure. It’s likely that we have already seen the worst of the volatility in the transport market. That said, we can expect to see rising costs through at least the next year, and likely into 2023 as well.
Market capacity is tight. ENERGY’s relationships and standing with our carriers allow us to grab the available capacity and make it work for you. Discover for yourself what it’s like to work with a reliable, end-to-end logistics partner like ENERGY Transportation Group by getting in touch with us today.