Caution Ahead: Despite the Freight Boom, Rising Costs Could Put a Dent in Carrier Growth
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