As virus wanes, consumer spending shift could pop freight-heavy spending — and rates

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Updated Mar 12, 2021

With the spot market jarred, we asked analysts and forecasters at DAT Solutions to peer through the fog and try to make sense of what lies ahead for freight demand and rates in 2021. The underlying forces appear to point to a coming spot freight slowdown, though wildcards remain.With the spot market jarred, we asked analysts and forecasters at DAT Solutions to peer through the fog and try to make sense of what lies ahead for freight demand and rates in 2021. The underlying forces appear to point to a coming spot freight slowdown, though wildcards remain.

The goods-heavy retail recovery that buoyed many trucking sectors since last spring had slowed some in December and into the first weeks of 2021. Then, reminiscent of other major weather events in recent history, February’s severe winter weather blast jolted the supply chain. It constricted capacity and disrupted freight patterns — a recipe that buoyed spot market activity and per-mile rates.

But what’s next? As the pandemic shifts and the economy continues to morph, what can truckers expect from freight demand as 2021 ages? What will happen with rates?

We pitched these questions and more to the brain trust at DAT Freight & Analytics, which runs the DAT load board network and provides a slew of freight economy data and forecasting metrics. We asked them to gauge what’s happening in the current market -- and what operators can expect in the months ahead. That includes Ken Adamo, DAT’s chief of analytics; Dean Croke, principal analyst at DAT iQ; and Chris Caplice, an analyst for DAT and executive director of MIT’s Center for Transportation and Logistics. Here’s what they had to say.

February’s severe weather shocked the spot market — pushing rates on some lanes as high as $7 a mile. 

Over the past year, the spot market “bent but didn’t break,” said Adamo. February’s weather event, however, caused a snapping point. “Over the past few weeks, there were things that were broken." At one point, Adamo saw rates as high as $7 per mile for loads from Chicago to Atlanta, for example.

Likewise, Croke said he saw a load of bed sheets bound from the Midwest to Florida for $9,000 -- for a single load. 

The spiral was multi-fold: The severe weather events constricted capacity by literally freezing certain lanes (and other networks like rail and intermodal) across the Midwest and the South and halting tens of thousands of trucks.

Load volumes shot up to record highs on DAT’s load boards as shippers tried to position freight around the weather.

Lastly, freight volumes remained elevated in the weeks since due to demand for recovery and relief loads bound for affected areas. That's also just as the usual spring freight season entered its early weeks. 

The cracks that formed in the spot market “were the culmination of everything we’ve been talking about” the past year, said Adamo, with respect to the market's imbalance and shifts.

Pandemic spending habits that drove the freight recovery are likely to change as more people are immunized and demand for household goods slows, which could cause freight demand and rates to flatten or slump. 

With many Americans forced to stay home more, and with many forced to work from home as offices closed, demand for household goods and retail goods spiked, dovetailing with declines in spending on services. Those spending habits obviously resulted in many a truckload of freight, helping revive a freight market that crashed last spring. 

However, as the pandemic enters its second year, those spending habits are likely to change -- perhaps in a big swing.

Drained retail inventories and a surge in household goods spending 'dumped so much freight into the dry van space,' said Dean Croke, principal analyst at DAT iQ. Later this summer, 'the other side of that whip could hit us,' said Chris Caplice, DAT analyst and director of MIT's Center for Transportation and Logistics, meaning that a shift to services spending and away from goods could cause the spot market to deflate.Drained retail inventories and a surge in household goods spending "dumped so much freight into the dry van space," said Dean Croke, principal analyst at DAT iQ. Later this summer, "the other side of that whip could hit us," said Chris Caplice, DAT analyst and director of MIT's Center for Transportation and Logistics, meaning that a shift to services spending and away from goods could cause the spot market to deflate.

Many households that purchased items like refrigerators, washing machines and dryers; chairs for a home office; exercise equipment; and new televisions and couches, for example, are no longer shopping for those items. “The market is going to come back down,” absent unforeseen surprises, said Caplice. As the pandemic eases, with greater herd immunity and widespread vaccinations, “there will not be pent-up demand for new washing machines, but for services,” Caplice said, such as going out to eat and going on vacations. 

“And you can’t ship a vacation,” said Croke.

The freight market will also have to grapple with the so-called K-shaped recovery of the crash last spring, in which white collar and middle-class families fared well and many of those in lower income brackets saw continued unemployment and bore the brunt of the downturn.

As jobs at restaurants and bars come back, and as manufacturers are able to staff up and handle backlogs in production of cars and other goods, those workers likely aren’t going to suddenly pick up the goods-spending steam. “People on the lower end of the K obviously don’t spend as much on consumer goods as those at the top end of the K,” said Croke. They’ll likely use renewed earning potential to pay down debt accrued trying to survive the downturn, he said.

Crimped capacity and a bogged-down supply chain could still be in play.

Much of the upward rates pressure over the past year has come due to dramatic and unanticipated shifts in freight types, lanes and destinations, as well as tight capacity among carriers. Freight that likely would have been hauled under contract was diverted to the spot market, causing volumes and rates to swell.

Likewise, tight capacity, due to small carriers sitting out or even going out of business, and due to larger carriers’ ongoing struggles to hire and retain drivers, contributed to spot rates’ surge in the back half of 2020.

Croke cited as key reasons for the tight driver pool a bottleneck in new CDL holders due to COVID-caused slowdowns at driver training schools and at state licensing departments, the implementation of the CDL Drug & Alcohol Clearinghouse rule, and some 90,000 drivers that were cut in the spring 2020 downturn. 

Likewise, despite robust truck orders over the past six months, truck manufacturers are facing building hurdles and parts shortages, slowing delivery of those new truck orders.

RELATED: Expect pandemic-boosted retail freight to stay strong, analyst says

All of these factors could be a drag on any gains in capacity and keep upward pressure on rates, the group said.

Also, retail inventories are still depleted, and there’s a huge backlog of maritime freight waiting to be offloaded at ports on the West Coast and, increasingly, at Gulf of Mexico and East Coast ports.

Caplice, however, worries those goods “might end up sitting in a warehouse somewhere,” as goods spending wanes this summer. “Can we continue to absorb all of this product?” he said, noting the retail market “could see a crash at the end of the summer.” 

Rates likely will see a sluggish streak.  

The big question, Caplice asked, is whether the weather-caused upturn from February will “have legs, or will it be a blip?” 

Adamo says a slowdown in the spot market seems to be the underlying prevailing force. “Things will stabilize. [More] freight will go back to contract between shippers and carriers. [New trucks] will get delivered. Those three things will put deflationary pressure on spot rates,” he said, especially if there’s “even a slight shift back to the service economy.”

On the contract rates side, “we’re reverting to the mean" of 3-4% growth annually, said Caplice.

Among potential upsides are continued growth in industrial freight, such as deliveries in and out of manufacturing facilities and construction loads. “That’s a big wild card,” said Adamo,” what’s going to happen with industrials. They got pounded by COVID.”

Likewise, said Croke, after the goods-to-services inflection point, there will be some return in freight that was dashed by the pandemic: “Jet fuel. Beer. Belts.”

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