Note to CEOs: Don't blame the logistics department!
Feb 17, 2021
BY MIKE REGAN, CO-FOUNDER OF TRANZACT
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Over the past couple of months we have been highlighting the impact of Code Red conditions in the transportation marketplace.
One of the consequences of these Code Red conditions is that a lot of shippers are experiencing significant increases in their freight costs. So it is not too surprising that I have received emails and calls from CEOs and Presidents who are basically wondering whether the increases they are experiencing are also being experienced by other shippers in North America.
So if you are working in a company and have your C-Level executives wondering what the heck is going on, we encourage you to send them this Two Minute Warning. Because with contract negotiations underway, it's going to be a wild ride for many shippers.
More importantly, if you work in a logistics department and could still use some help convincing others (or even yourself) that rates are elevated across all modes, here are a few recent updates from across the industry to note.
According to DAT, Spot Load posts were up about 68% in January y/y while Spot Truck Posts were down roughly 18%. As for rates, Van Spot Rates in January were reported at an increase of about 26%. This is down slightly from December, but the number of ocean vessels backlogged at the ports indicates this won’t be dropping much further anytime soon.
When it comes to LTL rates, FreightWaves recently shared that “The majority of the increases are in the 5% to 6% range, likely indicative of tightening LTL capacity and a rate-disciplined environment.” The LTL carriers have shown their discipline for several years now and we can expect more of the same.
While UPS and FedEx issued their standard 4.9% GRI for 2021, they’ve been issuing a slew of surcharges that only drive overall parcel costs higher.
Analysts at Wolfe Research advise in their Q1 State of Freight report, “Shippers expect a 3.8% increase in intermodal rates over the next year, the highest level since 2018. However, shippers have temporarily shifted freight from intermodal to TL as they rush to re-build inventories.” While there was some slowing down in this area in previous years, it's picked up once again as conditions have tightened throughout the industry.
The Shanghai Containerized Freight Index shows that rates have risen from around $1000 per container at the beginning of 2020 to nearly $3000 per container now. Although some shippers may have avoided the brunt of these high rates due to their contracts, the negotiation season will likely occur before rates fall, putting into question whether shippers will be able to obtain favorable contracts in the future.
We’re not here just to convince you that this market is tough! If you could use help with any area of managing your logistics activities, we encourage you to get in touch.