Demand for transportation and logistics services continues to rebound to pre-COVID-19 levels as states and businesses reopen and vaccinations become available to all adults. The economy is projected to improve throughout 2021; experts are forecasting GPD to grow in the 5 percent to 7 percent range. That economic growth, including gains in consumer spending on goods, will drive freight movement. As consumers begin spending more on services such as dining, hotels, events, and travel rather than on goods and services purchased online during the pandemic, the e-commerce sector may experience some softness. Other research suggests that e-commerce buying habits will continue after the pandemic subsides. Across most industries, demand is expected to rebound fully. This is especially true following March’s third stimulus package.
Freight Transportation Research (FTR) Transportation Intelligence forecasts truck loadings to increase more than 5 percent in 2021 after suffering a 4 percent decline in 2020. Rates continue to increase as well. Cass Information Systems’ truckload linehaul index, a measure of per-mile linehaul rates excluding fuel, accelerated to a 10.1 percent year-over-year increase in March. This was the 10th straight month of sequential increases in the index. According to DAT, van spot rates continued to increase from February to March and were up 41.8 percent year-over-year. Overall, FTR anticipates that spot and contract rates could climb 10 percent on aggregate this year.
Some capacity constraints exist that could limit carriers’ ability to manage the demand for freight services—largely a shortage of professional drivers, input costs and supply, and the regulatory, legislative, and judicial climate.
The U.S. professional truck driver shortage is currently estimated to be more than 60,000. Industry wide, many older drivers retired early in the pandemic, and others have had difficulty renewing or getting new commercial driver’s licenses due to closures of state motor vehicle offices. Truck driving schools also closed during the pandemic, reducing a new class of drivers entering the industry. Some would-be drivers may simply be enjoying extended unemployment benefits, stimulus package money, and tax returns. Moreover, thousands of drivers have been disqualified from driving since the Federal Motor Carrier Safety Administration’s Drug and Alcohol Clearinghouse launched in January 2020. The Drug and Alcohol Clearinghouse has already culled more than 45,000 commercial drivers from the industry who have either failed tests or quit before testing, knowing they would fail. Only a small portion of these drivers have completed the required return-to-work process.
To attract and retain drivers, many carriers are increasing pay, moving to hourly pay, offering sign-on, transition, and performance bonuses, creating predictable work schedules, and allowing more home time. The National Transportation Institute projects continued acceleration of professional driver wages through at least 2022, likely by around 5 percent nationwide. Driver turnover will continue to be an issue as drivers jump ship to capture attractive sign-on bonuses and other recruitment initiatives. Overall, reduced driver supply, coupled with increasing demand, will continue to drive transportation and logistics rates up through the year.
Steel, lumber, fuel, and other input prices are also rising, negatively impacting the transportation industry. National average diesel fuel prices were $3.12 per gallon as of April 26, 2021, up $0.69 from a year ago, according to the U.S. Energy Information Administration. This uptick continues the rising trend seen since early November 2020. Higher oil prices could reflect optimism about economic growth as the world begins to move past the pandemic. Shortages in metals and microchips are impacting the production of tractors, trailers, and other devices essential to the industry. Available tractor and trailer build slots are currently more than one year out.
The industry also faces the regulatory uncertainty of a new presidential administration and Democrat-controlled Congress. The industry is watching how Biden’s administration and Department of Transportation (DOT), led by former South Bend, IN, mayor Pete Buttigieg, will handle several regulatory and legislative issues, including: revising hours-of-service (HOS) rules, creating pilots for under-21 drivers, mandating truck speed limiters, developing Compliance, Safety, Accountability (CSA) safety fitness ratings, creating sleep apnea criteria for drivers, decriminalizing marijuana, implementing hair testing for drugs and alcohol, and determining whether driver detention time should be regulated. Trucking may also be impacted by Biden’s sustainability regulations and infrastructure plans.
Following the passage of March’s stimulus bill, the current administration turned its focus to infrastructure investment. As part of the Build Back Better plan, the administration has proposed a $2+ trillion infrastructure effort that includes investments in several traditionally defined infrastructure areas, but also a significant amount of social and environmental policies and spending. The plan anticipates spending $50 billion on road and bridge repair in 2021. The current administration has also pledged to be as environmentally conscious as possible, with investments in clean energy and electric vehicles being top priorities. The largest unknown is how to pay for the plan. Several funding mechanisms are being considered, including increasing corporate taxes, increasing the fuel tax, tolling, public/private partnerships, and a vehicle-miles traveled tax—which is an attempt to include tax collection from the growing number of electric vehicles, but is also very costly and complex to administer across all vehicles. An infrastructure bill could include a host of riders that would impact the industry, including CSA and HOS revisions, higher insurance requirement minimums, sleep apnea measures, truck parking provisions, and more.
The federal government must also contend with the considerable attention the COVID-19 pandemic has drawn to the complexity of supply chain management. Since early in 2020, the general public has become much more aware of the importance and global nature of supply chains—and how they can be personally affected by distribution challenges and sudden changes in demand. Policy makers, too, are showing greater interest in developing policies and legislation to increase supply chain security, transparency, and resilience and to bring the production of critical products back to the United States.
Finally, as nuclear verdicts ($10 million plus) continue to plague the trucking industry, calls for tort reform are underway. The American Trucking Associations (ATA) is focusing its efforts on those reforms most important to the trucking industry, like elimination of joint and several liability, caps on punitive damages, the recognition of collateral sources, and the admissibility of non-use of seat belts—where defense lawyers are unable to present evidence that a victim was not wearing a seat belt, contributing to his or her injuries. The ATA also works closely with state trucking associations to ensure that trucking industry interests are included in state tort reform efforts. A piece of legislation is currently being considered in Iowa that would help restore fairness to the system by placing a cap of $1 million per injured party for non-economic damages.
It's clear the ongoing challenges have taken a toll on global and domestic supply chains. When shippers enlist a partner to help manage their supply chains, it doesn’t indicate they are struggling; rather, they are choosing to focus on their core business. Many choose to utilize the broad and deep expertise of Ruan, an asset-based 3PL with 89 years of experience, a superior technology platform, and refined supply chain management processes.
Ruan understands that every business has its own strengths and pain points, and we never try to squeeze your needs into a pre-defined supply chain offering. We offer a true partnership that enhances your strengths and helps solve your challenges. Reach out to our supply chain experts at Solutions@ruan.com. Explore more about Ruan's customized, Integrated Supply Chain Solutions.