2020 was a challenging year for both shippers and carriers as the COVID-19 pandemic created extreme freight rate and capacity uncertainty. Now, however, all eyes are on 2021 outlooks to gauge which direction the freight market will turn this year.
Red Kite’s team of logistics experts is monitoring key metrics and expected trends to keep our customers informed and ensure they receive fair, competitive rates based on current market conditions. Here are some key metrics that we will be closely watching this year.
In 2020, we saw diesel fuel prices sharply decline as the COVID-19 pandemic halted vehicle traffic across the U.S. and crude oil production slowed. Last year, the U.S. average retail price for diesel fuel was $2.55/gallon, according to the U.S. Energy Information Administration (EIA).
This year, however, diesel fuel prices will be on the rise. According to the EIA’s Short-Term Energy Outlook report, we can expect the U.S. retail price for diesel fuel to average $2.71/gallon. This report states that we can expect diesel fuel prices to mirror the direction of crude oil prices, which are forecast to increase as oil production ramps up.
Diesel fuel prices directly impact freight rates, as carriers typically include fuel surcharges in their rate to help cover operational costs. Red Kite will closely monitor 2021 diesel fuel price outlooks to determine the implication for freight rates.
Truck capacity was extremely volatile in 2020 as demand for essential goods skyrocketed and demand for materials used in manufacturing plummeted, creating low capacity for some trucking services and high capacity for others.
Truckload dry van services, in particular, had tight capacity last year, and experts say we can expect this trend to continue through at least the first half of 2021. Analysts believe that we can also see an uptick in LTL loads as infrastructure and construction projects that were placed on hold proceed, which could tighten capacity for those services.
Slow trailer production and a shortage of truck drivers will also contribute to tighter capacity for all trucking services. This is a trend that experts say could last until well into 2021 as carriers struggle to hire new drivers and supply chain disruptions impact trailer manufacturers.
Truck capacity is another key metric that influences freight rates. When capacity is fuller, rates typically go up, and when capacity is less full, rates typically go down. The Red Kite team will monitor trucking capacity throughout 2021 to see how capacity could impact rates and shippers’ ability to secure load coverage.
In 2020, we saw freight rates follow volatile patterns, spiking and ebbing as freight demand rapidly changed.
Spot freight rates were on the rise near the end of 2020, however, and industry experts say we should expect to see rates trend upwards for the majority of 2021. While rates are predicted to stabilize after the widespread distribution of the COVID-19 vaccine, growing freight demand as businesses re-stock their inventories will keep pushing upward pressure on rates.
Construction & Infrastructure Growth
Construction and infrastructure projects were widely delayed in 2020 but are expected to resume and even increase in number amid economic recovery.
As 2020 came to an end, we saw a record-high increase in construction spending as mortgage rates remained low. Demand for private and residential projects, in particular, skyrocketed as more people look to move to suburbs or low-density areas. This trend in construction is expected to continue, meaning we will likely see increased demand for building materials and steel and metals and – therefore – the trucking services that transport them, including flatbeds.
Infrastructure investment could also boost demand for flatbed truck services. Prior to election, President Biden stated in his “Build Back Better” economic recovery plan that we can expect to see the government invest over $7 trillion on infrastructure initiatives, beginning this year. If this recovery plan passes through Congress, we could see even more demand for flatbed trucking services.
Red Kite closely watches industries tied to the markets we serve to ensure we are finding the best freight solution for each of our customer’s specific industry needs, which is why we are monitoring construction and infrastructure sector outlooks.
Navigating the 2021 Freight Market
Monitoring trends like capacity and fuel prices is crucial to understanding how shippers may be impacted by the current freight market. It is especially important to monitor these trends in volatile markets, where rates and capacity can rapidly change.
It can be challenging, however, to find the time to monitor all the different metrics that impact truck freight. Logistics experts like Red Kite are constantly watching market trends, and by partnering with a 3PL, shippers benefit from their expertise and get important guidance on how to strategically coordinate transit for their loads within a particular market.