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'Guessing game': Carriers can expect contract rates growth for 2021, though uncertainty abounds



'Guessing game': Carriers can expect contract rates growth for 2021, though uncertainty abounds
Short-term freight contracts between shippers and motor carriers (and brokers) remain en vogue, as supply chain stakeholders continue to try to balance the recent run-up in truckload demand with the lingering uncertainties surrounding the longer-term outlook for the market and the broader economy.

While contract rates have been steadily climbing since the economic recovery began in early June, the ultimate outlook for contracted per-mile rates between carriers and shippers is somewhat muddy — especially after the calendar flips to 2021.

“There’s winners and losers in nearly every sector at the moment,” said Dean Croke, a principal analyst at DAT Solutions. In large part, carriers have muted any significant contract price increases and haven’t been in a rush to add capacity, he said, lest the bubble pop and the industry find itself in a capacity excess, such as in 2019.

Nonetheless, contract rates have risen on average 18 cents a mile since May, said Croke, compared to an average of 93 cents a mile for spot rates.

So-called “mini-bids,” those lasting either two or three months or based on certain lanes exclusively, “are being carved out” to help carriers and shippers manage the market imbalance, Croke said. Right now, as far as projecting contract rate increases heading in 2021, “it’s kind of a guessing game,” he said. “There’s certainly upward pressure, but there’s so much uncertainty about demand.”

Loadsmart’s Jim Nicholson, the digital brokerage’s vice president of operations, said he expects contract rates to climb as much as 8-12% in 2021 overall compared to 2020. “The strong demand story continues, and this prolonged recovery will no doubt bridge through the end of the year,” he said.

While the spot market is already settling some after a topsy-turvy 2020, the months of pressure building up of late should help thrust contract rates upward, with Nicholson noting that the demand surge “can’t fully be satisfied” by the spot market alone.

“Supply chains are under pressure,” he said. “Shippers are trying to satisfy this insatiable retail demand with inventories that are at six-year lows. Import activity remains strong, and we absolutely expect this trend to continue.”

Nicholson agrees that carriers don’t want to be caught in the same position they were in 2019, when a build-up of capacity to deal with a record-strong 2018 caused rates to fall flat. Likewise, he expects a return to more normal seasonality of freight patterns — the usual March-to-June peak season, followed by a summer lull, and then the second freight season in September and October preceding the holidays.

Currently, freight’s mostly been positioned for the usual holiday retail rush, meaning the truckload sector has already seen much of the benefit of the second freight season.

However, both Nicholson and Croke say that shippers are already eyeing the spring season. “I believe supply chains will be able to build up inventories in December,” said Nicholson, to position themselves for 2021.

“Shippers are already thinking about next spring,” said Croke. “They don’t want a repeat of [this] spring. They’re already thinking about how they’re going to get freight in time, because capacity is still tight on the ocean.” Any early rush to prep for the spring freight season would only help prolong the current recovery, even if it sees a lull in the early part of 2021.

Croke added that, despite the boom in some sectors, other sectors have continued to fight tougher bouts with the COVID economy. “If you’ve got a dry van and a lift gate, you’ve been driving the wheels off it,” he said. “If you have a flatbed, a dropdeck or haul specialized, those volumes aren’t as good. It’s so disjointed,” he said.

Original article provided by:  https://www.ccjdigital.com/carriers-expect-contract-rates-growth-2021/