Thursday, April 22, 2021
by Drew Jackson
After a rollercoaster of a year in 2020, analysts are predicting that
the good times will keep rolling for carriers and independent owner-operators well into 2021.
This
is great news for the industry. But the current boom isn’t without its
challenges for carriers, particularly those locked into rate contracts. So
what’s going on with the market? And how can carriers get more latitude in
their contracts? Here’s what we’re seeing—and what we believe carriers can do
to protect their business.
From Bust to Boom
When parts of the country plunged into lockdown during the early stages of the COVID-19 pandemic, rates plummeted. Trucks were available, but demand was significantly depressed as consumers sheltered at home and nonessential businesses closed up shop for weeks.
Lower
rates, combined with widespread cash-flow issues, forced many trucking
companies out of business. Tens of thousands of drivers were dropped from the
rolls, some never to return. In addition, the pipeline for new drivers was
backlogged as trucking schools temporarily shut down.
Now,
the situation has been flipped. Starting in late June, the demand for goods and
materials picked up as businesses resumed operations and consumers began to
spend more. However, there were fewer trucks available to meet demand, and
rates reached an all-time high. On balance, the year ended strong for carriers
and independent owner-operators that were able to stay in the game.
Speed Bumps Ahead?
High
rates are likely to continue throughout 2021, especially as consumer confidence
picks up and the economy continues to rebound. But what goes up must come down.
There are a number of developments that could eat into carrier profits in the
coming months.
In
California, Assembly Bill (A.B.) 5 continues to create market uncertainty.
Although trucking has been exempted from A.B. 5 since early 2020, a California
court recently ruled that the law applies to the industry after all .
Depending on how this plays out in federal court, California-based
owner-operators and carriers could find themselves in a squeeze.
The
general cost of operating is
also going up. Diesel prices are
on the rise, a development that can be traced to improved economic activity,
higher crude prices, and supply disruptions. Insurance premiums are also
increasing, another factor that will hurt profitability. And many carriers are
needing to boost wages in a bidding war for drivers.
Elevated
rates are providing some cushion against these soaring costs, but they won’t
last forever. Efforts are underway to ramp up capacity, which will likely bring
market rates down. We don’t believe that will have much impact on rates and
pricing until later this year, or possibly not until 2022. But savvy business
owners should plan ahead for potential dips down the road.
How Carriers Can Protect Their Business
Rising costs are putting many carriers with
established contract rates in a tight position. Even with built-in protections
against reasonable market fluctuations, recent rate increases are anything but
typical.
Based
on our experience, the best course of action is to approach the contract as a
partnership that benefits both you and your customers. Follow market trends and
educate customers about what’s happening and why. Be honest about the effects
on your business and fair in proposing a rate adjustment. By being up front
about market conditions, carriers will be better positioned to renegotiate
compensation.
At
US Logistics, we help carriers meet their business challenges by balancing
technology with personal attention. Our onboarding process is straightforward,
and we offer access to tens of thousands of loads. We maintain a short-time pay standard, manage collections
and shoulder the risk of nonpayment so that our carriers have more certainty in
their operations. In short, our experienced team is always on so that our
carriers can focus on the road ahead.
Learn more about how USL can deliver more certainty to your operations at uslfreight.com.