Truckload pricing poised to surge in 2021, say industry experts

At a recent investor conference, leaders from four of the nation’s top trucking firms indicated that strong demand and a tight supply situation are pointing to truckload pricing surging in 2021.

  • Steve Bruffett, chief financial officer at Schneider National, said the company’s current load tenders could fall by 10-15 percent and it would still have more freight than it could handle daily.
  • Eric McGee, executive vice president of highway services at J.B. Hunt Transportation Services, said he has seen demand increase incrementally each week over the last six weeks. He said the supply side of trucking continues to suffer from the impacts of the Drug and Alcohol Clearinghouse and a diminished driver pool.
  • U.S. Xpress Enterprises CEO Eric Fuller believes the current demand surge is in part due to lean inventories and that COVID-19 buying patterns will bring another two to six quarters of high demand for tangible goods that need to be shipped.

Bob Costello, chief economist for the American Trucking Associations (ATA) said the economy is shifting from consumers spending money on services, such as hotels and restaurants, to purchasing goods. He said more Americans are stuck at home and using the time to remodel, fix and redecorate – which means more home-based supplies are needed.

“On the consumption side, it is hard to spend money on services during a pandemic, when you are trying to social distance. So, what are you going to buy if you are not buying services? You’re going to buy goods,” Costello said. “Housing starts picked back up. All of that helped trucking.”

The latest housing market index from the National Association of Homebuilders, which gauges current and future single-family home demand, shows a strong rebound.

Demand for housing reached an all-time high last week, 15 percentage points above September of 2019 and at the highest level in 35 years.

The U.S. Census Bureau confirmed the trend, reporting that single-family building permits rose six percent from July and 16 percent higher than 2019 numbers.

The Fed is doing its part, announcing last week that interest rates are expected to remain near zero through 2023, a good sign for the housing market.

In its August report, freight data and research firm FTR Transportation Intelligence said it expects new truck orders to remain in the “20,000 range for the next few months.” The firm said that the large fleets are continuing to buy but at levels only in line with normal replacement cycles and that only a few orders have been for fleet expansion.

ACT Research’s longer-term forecast calls for a seven percent decline in the active Class 8 truck fleet by 2021 as overall transportation capacity has reached a near-two-year low.

U.S. Xpress’ September forecast cited three key insights:

  1. Rising Driver Turnover – As the economy slowly recovers, freight volumes will rise, and drivers will become an increasingly precious commodity. In recent months, the industry has seen significant increases in driver turnover, which is exacerbated by lower CDL school enrollment and the recently launched Drug and Alcohol Clearinghouse.
  2. Diminishing Truckload Capacity – Carrier bankruptcies nearly quadrupled from 2018 to 2019 and continually rising insurance premiums will further hobble small carriers. Concurrently, new truck orders have been on a downtrend until just recently. But even this recent uptick is significantly below most analysts’ calculated replacement demand level. We will need to see considerable acceleration in orders to keep pace with freight volumes.
  3. Overwhelming Load Volumes – Freight has continued to flow at unprecedented levels with tender volumes significantly higher than just a year ago. The pandemic has resulted in an absence of volume seasonality, where the market skipped over the usual summer lull. Many industry analysts also expect elevated freight volumes to persist through 2021.

“Each of these three themes will greatly influence trucking rates over the next four to six quarters,” said Eric Fuller, President and CEO, U.S. Xpress. “It’s becoming increasingly clear that high tide conditions will persist for a long while, so shippers and carriers will have to plan – and act – accordingly. “

“Business is back to last year’s numbers, finally,” reported Pitt Ohio President Chuck Hammel, who runs the nation’s 15th-largest LTL company. “We were down 20 percent in April, 15 percent in May and six percent in June. July was back to last year’s level,” he said.