Freight Costs Expected to Remain High in 2022
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Elevated freight rates are likely to remain through much of this year because of market turmoil, according to experts.
“We probably peaked in December but for the first quarter and probably even potentially into the second quarter we’re really not going to see any deterioration at all in the rate environment,” Avery Vise, vice president of trucking research at FTR Transportation Intelligence, told Transport Topics.
FTR data shows total truckload rates year-over-year are holding around 12% higher. They are forecast to grow 2.5% to 3% throughout the year. (That compares with a 29% rate increase in the spot market and 14% rate increase for contracts in 2021.) But year-over-year results could start stabilizing later in the year because of a surge in rates last year.
“Basically we recovered very quickly in the middle of 2020 to the rate levels we were at before the pandemic,” Vise said. “But then we saw, really in the second quarter of last year, a big jump in rates. So as we go through the year we’re going to see a lot more stability year-over-year.”
Cowen Research and AFS Logistics released a freight index report Jan. 13 that is anticipating truckload rates per mile to be 28.2% higher this quarter than January 2018. That baseline was chosen because it was a normalized freight market not influenced by the coronavirus pandemic. Sequentially, that compares with 25% higher in fourth-quarter 2021.
“Given what the market is broadly experiencing, given the sustained demand for goods, seeing this record level of a 28.2% off of a 2018 base didn’t shock us,” AFS Logistics CEO Tom Nightingale told TT. “Quarter-over-quarter, going up 3.2% in and of itself doesn’t seem shocking. But if you do the math on that, a 3.2% increase on a 25% base is a 12.8% quarter-over-quarter increase.”
The Cowen/AFS Freight Index also found less-than-truckload rates are expected to be 35.8% higher than the baseline but relatively level with the prior quarter. Ground parcel rates are expected to be 26.3% higher than the baseline compared with 19.2% higher in the fourth quarter.
“Right now there’s still strong demand out there,” Cowen analyst Jason Seidl told TT. “You’re not getting a lot of capacity to come back to the market.”
The index noted record general rate increases (GRIs) from parcel and LTL carriers last year and strong truckload pricing power is helping to drive rates.
“The cost of truckload capacity ticked up in mid-December, then came in higher than expected over the holidays and January certainly isn’t delivering the seasonal decline we’d see in a more typical environment,” said Ronnie Davis, vice president of North American surface transportation at C.H. Robinson. “While we had been projecting spot rates to increase 4% year-over-year in 2022, our lead economist has adjusted his forecast to 6% growth.”
Davis added much of the growth is likely to be contained in the first quarter and beginning of the second quarter because truck drivers were slower than usual getting back after the holidays, the omicron variant is sidelining drivers and more freight is being pushed into the spot market, as well as the winter storm season and robust freight volumes.
“We forecast rates to drop in line with the economy cooling off a bit and some shift of consumer spending from products to services,” Davis said. “If freight volumes come in lower than anticipated or if more drivers, tractors and trailers expand the pool of capacity, that could alter our forecast downward.”
Vise isn’t anticipating spot rates will curve downward because utilization is still high, markets are still stressed and there are capacity issues.
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“We don’t see the spot rate market really coming down very much at all for the year,” Vise said. “We see it being down about 2.5%. But we see contract rates being up in 2022 about 6%.”
“Spot rates drop in January pretty much on cue,” Dean Croke, principal analyst at DAT Solutions, told TT. “But last week they increased, which was the first time they’ve done that since 2018. So that’s sort of extraordinary.”
DAT results showed spot market load post volumes are 80% higher compared to the same time last year. But freight volumes overall are relatively flat. Croke expects spot rates to continue at around the same level for at least the next six months.
“We’re seeing about double the volumes of freight moving in the spot market right now than we would pre-pandemic,” Croke said. “So normally it’s a 90-10 split, 90% contract and 10% spot. Right now it’s about 75-25.”