Will your company need a "Code Red" freight budget for 2021?
Oct 21, 2020
Nobody likes unpleasant surprises – especially CEOs and Presidents!
And that is why every shipper I know wants to have a freight budget that accurately forecasts their freight costs for the upcoming year. That's also why at this time of year, when shippers are either finalizing or reviewing their freight budgets, we routinely get asked questions such as:
“How will supply and demand issues affect the transportation market and carrier rates in the next year?”
“Are there any ‘external’ issues (e.g. legislation or carrier issues) that could potentially impact our freight costs?”
“What strategies would we consider as we look at how to manage our freight costs?”
The freight budgeting process for most companies rarely changes and usually results in a forecast that is reasonable. Occasionally though, there are those outlier years like 2018 when something like the Perfect Storm hits and freight budgets get blown to smithereens! Which brings us to the point of this week’s Two Minute Warning!
Based on all the research and conversations we’ve been having with the financial analysts, C-Level executives at the carriers, and shippers, 2021 is shaping up to be an extraordinarily challenging year for shippers. That is why our recent Two Minute Warnings have been alerting shippers to the fact that these “CODE RED” conditions in the transportation marketplace may make 2021 a year like no other year!
If these predictions and forecasts from various industry experts are correct, then shippers need to consider whether they have a CODE RED freight budget. A CODE RED budget addresses the distinct possibility that the increases in your company’s freight costs – especially for parcel, truckload and ocean shipments – may be substantially higher than the historical norms that were used to build your 2021 freight budget.
To tackle this topic and provide shippers with some important insights about how the CODE RED conditions will affect your freight costs, we assembled an outstanding panel for a “Code Red Freight Forecast” webinar that we hosted yesterday with our friends from CSCMP and NASSTRAC. Based on the feedback we received, it may be one of the most important webinars we have conducted! What made it so valuable?
During the webinar, we heard from people like Eric Fuller, President and CEO of U.S. Xpress, who noted that shippers could see a 10-15% increase in their truckload costs, instead of the 5-7% rate increases that many experts are predicting. When Eric highlights that a 5-7% increase would do little more than cover the anticipated increases in driver wages, and not address other cost increases such as insurance, you can see why truckload rates may rise by 10-15%. Does your freight budget reflect these types of increases?
On the parcel side, industry veteran Jerry Hempstead addressed how surging parcel volumes and costs are affecting shippers. When he explained that shippers need to look beyond the proposed 4.9% GRIs and consider how surcharges could potentially result in much higher parcel costs, I couldn’t help but wonder: Do shippers' budgets reflect parcel costs increases in the range of 6-7%? More importantly, if shippers can’t quantify how many of their shipments will be subject to these new, or higher priced surcharges, how do they budget for how likely they are to impact them in the future? Fortunately, analytics tools like our Parcel Toolbox can help you gauge the impact of these costs.
When it comes to LTL shipping, Geoff Muessig, CMO and EVP at Pitt Ohio, was outstanding in helping shippers understand how the “time is money” principal could practically impact their freight rates. He also noted that LTL can afford to be selective in who they choose to do business with. And Avery Vise, VP of Trucking at FTR, did a great job walking us through some of the overall trends impacting the logistics industry. In particular, Avery’s data on chronically low Inventory to Sales ratios shed light on why freight demand will stay strong well in to 2021.
Add it all up and you get a better understanding of why your company needs to consider building a CODE RED freight budget that anticipates and incorporates the type of rate increases that could occur in this CODE RED transportation marketplace.
Fortunately, your friends here at TranzAct can provide support and tools that can help your company in this CODE RED environment. For now though, we strongly recommend that download the Code Red Freight Forecast webinar and give us your feedback on resources we can bring to you in the future.