Ground transportation outlook for Q4 2021in Canada, the U.S. and Mexico

Up to now, rates have been on an upward trend, as more freight enters the market and carrier capacity tries to keep up. Peak season is coming and demand is accelerating apace. Keep reading to find out where we stand as we enter Q4 2021 and to get some insight that will help you prepare for the upcoming months.

The volatility of the North American truckload market has been unprecedented during the Covid-19 pandemic. The effects of the health crisis on this sector have not yet receded. While the U.S. economy continues to recover strongly after the 2020 recession, the freight market faces rates at an all-time high, due to the increasing demand versus the lack of supply. Other disruptions like labor and equipment shortages, congestion at ports and warehouses, and adverse weather conditions have complicated the situation further. What is the panorama of 2021 so far, and what can be expected for the last leg of the year? 

Supply Outpaced by Increasing Demand 

During Q3 2021, as economies reopened across the U.S., consumer spending increased, exceeding pre-pandemic highs. Driven by consumption, industrial production has come down somewhat from its Q1 peak, but is still higher than it was during Q3 2020 and has increased sequentially during July and August. It decreased a bit in September due to the microchip shortage and the impact of Hurricane Ida. 

Companies continue to operate at a historic low inventory to sales ratio, as sales are outpacing inventory replenishment and shippers keep struggling to restock products in their warehouses. Consumer demand keeps climbing up, causing the skyrocketing of imports. Since the supply of carrier capacity is still insufficient, backlog and bottlenecks at the ports continue to be a problem. 

Port and Warehouse Congestion Plus Equipment and Labor Shortages  

The heavy congestion outside the ports of Los Angeles and Long Beach lingers on without immediate relief in sight. In order to meet their shortfalls, retailers have placed more orders from overseas, aggravating the problem. All this contributes to the scarcity of containers, which has affected supply chains since the middle of 2020 and is expected to continue until 2022 and increase the demand for truckload shipping, stressing supply chains further. Apart from this, there is a capacity crisis at warehouses and a shortage of chassis in many critical locations, for supply replenishment is being impacted by a tariff on equipment imports from China. 

The supply chain of transportation equipment remains clogged. The ongoing shortage of microchips and the high costs of other raw materials (like rubber, steel, and aluminum) keep blocking vehicle production, boosting equipment prices, and extending delays. The timeline for the fulfillment of class 8 tractor and trailer orders was almost duplicated, rising as high as 20 months during July. The requested capacity will not hit the road before the end of 2022 and possibly sometime after. 

Worker shortages are another problem manufacturers and shippers are experiencing. As demand continues to outpace supply, hiring is trending up for commercial truck drivers, and it will continue to do so during Q4 2021. Carriers keep struggling to hire heavy-duty tractor-trailers drivers and to replace an aging workforce with younger drivers. The industry is competing for a dwindling labor supply with other sectors with less demanding travel schedules, like construction and warehousing. The implementation of more rigorous hiring requirements and potential Covid-19 vaccine mandates also contribute to this need in the workforce.   

Without the necessary equipment and personnel, the increasing shipping volumes cannot be moved out of the ports, intermodal freight is delayed, demand is pushed to the already strained truckload market and volatility is compounded elsewhere in supply chains. The import spiking that holidays will bring about promises to exacerbate the situation before there is a chance for it to get better.

Sanitary and Climate Conditions Continue to Drive Market Volatility in Q4 2021 

During the summer, the market in North America and Western Europe experienced a slight recovery, until the Delta variant came along. People reverted to some of their spendings at home patterns rather than on consumption of services, in which they were investing before the setback, which would have eventually given the system a chance to catch up. This caused retrenchment in terms of economic performance and contributed to labor issues, inflation, and price and rate increases, all of which continue to this day. 

Moreover, halfway into the year, there was a new Covid-19 outbreak that caused further delays and a logistics crisis in one of the most important ports in the world, located in Yantian, Shenzhen, China. Any other shifts that Covid-19 has in store for us will continue to affect the market.

Hurricane season brought about multiple severe storms that damaged infrastructure and caused capacity to be parked or rerouted during Q3. Hurricane Ida, the strongest storm to hit the Gulf Coast region in 16 years since Hurricane Katrina, damaged facilities and disrupted the supply chain across an important portion of the South and Mid Atlantic regions. Since this season continues, further natural disasters could create another spike in market volatility. 

Q3 Truckload Market and Rate Performance

Both the spot and contract rate indexes have peaked. Nonetheless, we are still well into an inflationary rate environment, which is just starting to find stability after a period of unprecedented volatility throughout the pandemic. While the overall market cycle is heading down and seems to be falling back into its regular pattern, spot rates in Q4 will not be significantly lower than Q3. We are definitely past the cycle’s peak and a deflationary rate environment is likely coming in 2022, but it will be delayed and diminished, since the capacity that can drive the currently inflated rates back to deflationary numbers is struggling to hit the road.  

What to Expect for Q4 2021 Peak Season 

Q4 2021 peak season is right around the corner and demand is accelerating quickly, surpassing Q4 2020 numbers. The import of containerized goods will keep experiencing difficulties and deficient capacity will be more severe this year than previous ones, due to all the factors outlined above. With no immediate solution coming in Q4 to mitigate them, continue to expect volatility and prioritize flexibility. The situation will not recede until we are completely through this peak season, and it is probably going to last well into 2022 until we have some time to catch up. 

PARTIAL LOAD: THE ANSWER TO THE INCREASED RATES AND THE SUSTAINABILITY TREND IN FREIGHT TRANSPORTATION

One of the challenges for the freight industry freight transport in the international ground transportation in 2021 will be to have a logistics infrastructure that reduces the impact on the environment and facilitates the adaptation of shippers to the economic challenges that arise. To this end, Mexicom Logistics’s Partial Truckload service or PTL can be the right answer: –

• Cost-effective transport option for larger loads that do not occupy a full truck.
• It is possible to transport bigger loads than those allowed on the LTL service, without paying for the Full Truckload, and larger loads can be hauled than allowed on an LTL transportation service.
• The delivery time is shorter than in the Less Than Truckload or LTL service.
• It is possible to transport your load in PTL on international shipments from Mexico and save up to 50% in transport costs.