2020 has been a difficult year for many and it has strained the global supply chain in unprecedented ways. Ecommerce has skyrocketed, increasing by more than 32% year over year, and companies have had to adapt to getting packages to customers in a timely manner when delivery guarantees are suspended. As we near the end of the year, people are hopeful for what 2021 will hold—although there is still a lot of uncertainty about what comes next. While it’s hard to know exactly what will happen next year, here are some shipping industry trends that we project for 2021.
Ecommerce has skyrocketed, increasing by more than 32% year over year, and companies have had to adapt to getting packages to customers in a timely manner when delivery guarantees are suspended.
Capacity will remain tight
It is important to be realistic about the fact that capacity constraints that have been accelerated by the pandemic will not go away on January 1, 2021. Currently, capacity continues to remain tight across all modes from truckload to air freight to container shipping. In fact, West Coast ports have seen historic highs in imports in recent months, with the Port of Los Angeles and the Port of Long Beach setting container processing records in October. The tight capacity continues to put upward pressure on freight demand and is creating extremely expensive rates for west-bound hauls and a massive imbalance in the market. Consumer spending has been the primary driver in freight demand, and consumer behavior will be a big player in what 2021 will look like. As a shipper, you need to be prepared to budget for significantly higher freight rates to start the year. There are no guarantees, but it’s important to be prepared for capacity to remain tight in 2021.
Strong market for industry profitability
While many industry experts believe that capacity will continue to be tight as we move into next year, they also believe that there are many shipping trends that point to a very strong market for profitability in 2021. These include the unusual and unpredictable freight patterns, rebuilding of supply chains, influx of owner-operators and the worsening driver shortage. Trucking executives and industry analysts are expecting a post-COVID surge in the new year where retailers will restock their inventories and manufacturing will rebound. This is not expected in the first quarter, but it’s estimated that the rest of the year will be very strong. Generally, analysts are feeling pretty optimistic about economic recovery in 2021, but of course, it’s important to be prepared for any shocks that could still come.
Trucking executives and industry analysts are expecting a post-COVID surge in the new year where retailers will restock their inventories and manufacturing will rebound.
The truck driver shortage will continue
Across the board, driver recruiting has been extremely tough on fleets this year. Unfortunately, it will likely continue to be difficult as demand for drivers will increase even more. The American Trucking Association is forecasting a shortage of 58,000 for 2021. The new entrants into the market are putting pressure on fleets to try to replenish their driver pool, but COVID has made the driver shortage much harder. It has expedited the retirements of older drivers and reduced the number of new drivers coming into the market.
Shipping industry trends predict uncertainty in the contract market
Uncertainty is a guarantee as we move into 2021, especially in the contract market. Industry experts believe that if shippers and carriers agree to large contract rate increases in the neighborhood of 15 to 20 percent, that will weaken the spot freight activity. If contract rates increase 7 to 10 percent, motor carriers will continue to rely on a strong spot market. It’s clear that shippers are growing tired of the “wait and see” approach for RFPs and having to utilize the pricey spot market to move loads. Mini bids are a short-term approach that allows them to evaluate the best strategies. These are new variations on how shippers commit capacity in their networks, and more and more, shippers are looking to leverage short term data and capacity. Today’s market is causing freight cycles to happen at an accelerated rate. The increase in digitization of networks removes friction, which causes boom and bust cycles to play out much more quickly. Overall, FTR Transportation Intelligence, a transportation research company, is forecasting that contract rates in truckload will rise close to 10 percent and spot rates will rise up in a high single-digit percentage in 2021.
Overall, FTR Transportation Intelligence, a transportation research company, is forecasting that contract rates in truckload will rise close to 10 percent and spot rates will rise up in a high single-digit percentage in 2021.
Rate increases for shippers
Another shipping industry trend is rate hikes. We already know that price hikes are coming in 2021, as USPS, UPS and FedEx have already announced them and when they will take effect. The best course of action is to prepare for the coming rate hikes by optimizing your shipping program. Examine your current shipping solution and look for savings in routing logic, carrier contracts and networking. Make sure you take the future impact of all carrier rate increases into consideration to help mitigate future cost increases and diversify your carrier mix to increase delivery options and minimize holiday surcharges. Check out our blog post about carrier negotiation for shippers for more tips on improving your rates in 2021.
USPS Price increases
Increased rates for USPS are expected to take effect on January 24, 2021. The price increases for shipper services vary by product and mailing service price increases are based on the consumer price index. These pricing changes are due to pandemic-fueled increases in ecommerce that many believe have forever changed buying habits. Here is a breakdown of the increases:
- For Priority Mail Express, Priority Mail, Parcel Select, Parcel Return Service, USPS Retail Ground, and First-Class Package Service customers, a $100 fee will be assessed on packages that exceed the maximum mailable size limit (combined length and girth greater than 130 inches)
- Priority Mail sees increases of 3 percent for packages 1 – 5 pounds, 8.2 percent increase for packages greater than 6 pounds, 7.2 percent increase for cubic, regional flat rate sees an increase of 3.3 percent
- First Class Package Services increase 6 percent
- Economy Parcel Select packages see an increase of 5.9 percent for DDU induction if they are 1 – 10 pounds and 10 percent increase for oversized.
- Economy Parcel Select Lightweight packages see an 18.8 percent increase if they are less than a pound.
- First Class Package Services see a 6 percent increase for 1-4 ounces
More than half of the increase is driven by parcel select, which is used by large and medium-sized parcel shippers and private parcel companies like Amazon, UPS and DHL who outsource their volumes to USPS.
More than half of the increase is driven by parcel select, which is used by large and medium-sized parcel shippers and private parcel companies like Amazon, UPS and DHL who outsource their volumes to USPS.
FedEx rate increases
FedEx increases are effective on January 4, 2021. In addition to the rate hikes that we will lay out below, FedEx has also added a 6 percent late fee that will be effective on January 21, 2021. This fee is for outstanding invoices not paid on time. FedEx has also added more zip codes to the current final mile delivery area surcharges, which means customers will pay an additional cost for services. Below are some specific rate hikes from FedEx.
- FedEx Ground & FedEx Home delivery shipment rates will increase an average of 4.9 percent.
- FedEx US Export and Import delivery list rates will increase an average of 4.9 percent.
- FedEx US Express overnight delivery rates will increase by an average rate of 4.9 percent.
- FedEx Smart Post, Ground Heavyweight, and International Premium service will also increase.
- FedEx Freight will increase between 4.9 and 5.9 percent for customers.
- FedEx Ground Minimum will increase from $8.23 to $8.76, which is about a 6.5 percent rate increase.
UPS rate hikes
The UPS rate increase is effective before the end of the year, on December 27, 2020. They also note that UPS SurePost will be impacted by peak and COVID-19 surcharges, in addition to the general rate increase. Both UPS and FedEx have halted their money-back guarantees due to COVID-19. This means that shippers are losing a minimum of 8 to 10 percent of the annual revenue spent each year.
- UPS Ground Service shipment rates will increase an average amount of 4.9 percent.
- UPS Domestic Air Express overnight delivery rates will increase an average of 4.9 percent.
- UPS US Export and Import delivery rates will increase an average of 4.9 percent.
- UPS Freight will increase between 4.9 percent and 5.9 percent for customers.
- UPS Ground Minimum package rates will increase from $8.23 to $8.76 or an additional $0.53 per shipment, which is about a 6.5 percent rate increase.
- Effective January 10, 2021, an Additional Handling charge will be applied to any package with its length plus girth combined exceeding 105 inches
- Effective April 11, 2021, Additional Handling and Large Package Surcharge rates for non-Hundredweight Service packages will differ by zone, and effective July 11, 2021, Additional Handling and Large Surcharge rates for Hundredweight Service packages will differ by zone.
Both UPS and FedEx have halted their money-back guarantees due to COVID-19. This means that shippers are losing a minimum of 8 to 10 percent of the annual revenue spent each year.
This year’s shipping problems will reshape fleet strategies for 2021
The pandemic, economic recovery and holiday seasons have all worked together to put a huge amount of stress on the shipping industry. Ecommerce sales saw a massive spike and many brick and mortar stores have seen a decrease in sales. This trend has sped up the drastic shift to ecommerce. Many companies believed they had three years to execute on ecommerce growth, but the pandemic hit suddenly and accelerated that growth which means shippers and retailers have had much less time to make the transition. The shipping and logistics problems that many businesses experienced this year will reshape fleet strategies for the future. USPS and UPS are experiencing delays due to significant increases in volume and decreases in employee availability. Shippers are at a vital point where they need to pivot their strategies from physical to digital in order to meet demand. Many industry experts believe the strain on shippers will continue after Christmas as holiday returns and spikes in COVID from holiday gatherings will extend it. Even after the pandemic subsides, ecommerce and fast delivery expectations will continue to be strong. It is worth noting that retailers did not successfully achieve 1-day delivery expectations in 2020. On average, they took 2.8 days to fulfill orders this year, compared to 1.8 days in 2019. Now is the perfect time to pivot your supply chain and business model to improve your customer experience with this information in mind.
Many industry experts believe the strain on shippers will continue after Christmas as holiday returns and spikes in COVID from holiday gatherings will extend it.
Study the shipping industry trends to prepare for what is coming next
It’s hard to know exactly what 2021 will bring, but the shipping trends outlined above should give you an idea of what to expect. Continuing to perfect your omnichannel and ecommerce fulfillment strategies with options like buy online pick up in store (BOPIS) and flexible shipping options, planning ahead for shipping rate increases, preparing for continued shipping delays, and analyzing your carrier contracts now are great places to start. For more information or to see if ITS Logistics can help you with your 3PL and shipping needs in 2021, contact us today.
