The 2:00 Minute Warning

Almost like clockwork, this is the time of year when we receive lots of calls and emails from shippers looking for advice as they start to prepare their freight budgets for the upcoming year. And this year is no exception.

So for those of you who have responsibility for freight budgets in 2022, we have some good news and bad news.

Starting with the good news, 2022 should be a much better year for shippers than 2021. We don’t expect shippers to see the types of significant rate increases that occurred in 2021. We believe 2021 was an aberration with several “black swan” events that resulted in freight budgets for shippers being blown to smithereens!

The bad news is that those significant rate increases that occurred in 2021 will continue to be baked into your rates, so if you were holding your breath and looking for some relief from skyrocketing freight rates, you’re likely to be disappointed. That said, shippers are likely to see increases that are more in line with historical averages versus what happened in 2021.

On the Ocean front, we have seen forecasts projecting rate increases to be in the neighborhood of 12-14%. In our interview with our friend and ocean expert Peter Tirschwell, he explains what's happening in the ocean market and what could happen if we continue to see multiple Black Swan events, as well as what happens when you slow down the supply chain circulatory system. Overall, Peter noted that managing increases with ocean carriers will be more of an art than a science, but shippers should expect the carriers to continue to focus on managing capacity and protecting their existing rate levels.

On the Truckload side, the experts are telling us to expect increases in the range of 8-10%. The key factor driving these increases is the substantial increase in wages being paid to drivers. Numerous truckload carriers have reported 15-25% increases in driver compensation in 2021. In an environment where capacity will remain tight, the carriers will likely be able to pass along these increases as well as in other important areas of the business (i.e. insurance).

When it comes to LTL shipping, the experts are anticipating increases of 6-8%. Recently, I heard the CEO of a major LTL carrier explain the new rules of the game: "We have trucks, shippers need trucks, so we can charge what we need to charge to earn a fair return on those trucks.” What does that mean? It means that just about every major motor carrier has the technology to monitor their operating ratios with each one of their customers. And since they have thresholds to maintain their operating ratios at predetermined levels, they will price their services ensure that they are achieving an acceptable ROI.

When it comes to parcel increases, we believe FedEx and UPS will issue their standard 5% increase, but the experts are also cautioning shippers to look for FedEx and UPS to use creative accessorial charges to bring overall cost increases into the range of 7-10%. If you are looking for additional information on rail, intermodal or air shipments, give us a call or send us an e-mail.

Before closing, we have some very important advice to share: We recommend having a contingency section in your budget that alerts the executive team (especially your C-Level executives) to the fact that if certain events occur in 2022, this could have a significant impact on the budget. One example of this is the upcoming contract negotiations with the longshoremen (ILWU) at the West Coast Ports. Their contract is up for renewal in July 2022, and the issue of automation could lead to some unpleasant outcomes. Another potential event that could have a big impact on your budgets is the outcome of the AB 5. This is legislation which impacts whether some truck drivers would be able to continue being classified as independent contractors or not. The Trucking Associations are predicting that this legislation if enacted, or worse, if adopted at a Federal level would be bad for carriers and shippers.

If you’re looking for additional resources for building your 2022 budget, download our updated Transportation Spend Management Plan eBook.

BY MIKE REGAN, CO-FOUNDER OF TRANZACT
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