As we struggle to combat Covid-19 and other mutant strains of the virus, through this year and beyond, logistics planners may want to keep their eye on some key factors affecting the supply chain. You may find some of these topics affecting your logistics planning in the coming years.
Expect Increases in TL and LTL Transportation
“It has been a wild ride this year, but after a shaky start, the trucking market has been a good one for carriers since June, with spot rates rising each month the last couple of quarters,” says David Ross, transportation analyst at Stifel Investment Banking. “Contract negotiations will lag, but the industry pricing has already been reset higher. Driving these increases has been the combination of reduced industry supply, fewer drivers and fewer trucks, and improving and steady demand after we emerged from the lockdowns.”
Looking to 2021, Ross does not see the supply issues being quickly resolved. However, the bigger swing factor will likely be overall consumer demand. Still, he sees rate increases up in the high single digits in 2021 versus 2020 on the contract side.
Meanwhile, with a positive backdrop provided by the TL capacity issues, Ross says he sees no reason why LTL can’t continue its steady push of low- to mid-single digit rate increases. “It doesn’t need as much, because LTL is a more consolidated industry with steadier annual price adjustments, but we expect the carriers to take advantage of the rising tide and push closer to 5% than 3% for rate increases in 2021,” he concludes.
A significant drop in crude oil demand should help to moderate trucking rates this year. The U.S. Energy Information Agency predicts that demand will only grow by 5.9 million barrels per day in the coming year, which will leave global demand around 3 million barrels per pay below 2019 levels. And for this reason, we should expect to see oil prices continue to remain low, though uncertainty around the continued collective determination among OPEC members to maintain production cuts is likely to cause some price volatility.
This potential volatility could be intensified by the upcoming change in U.S. leadership. It’s unclear how eager President Biden will be to re-engage Iran with a new nuclear deal, resulting in increased Iranian oil production. Meanwhile, the entire Middle East region, which has seen four historic peace deals brokered in recent months, is always a stability concern.
Rail and Intermodal Expect Similar Rate Increases
Navigating the road to post-pandemic normalcy will be a major challenge for rail and intermodal operators, says Jason Kuehn, vice president of the consultancy Oliver Wyman. He adds that third quarter 2020 rail traffic data can be described as nothing short of resilient overall, with a handful of exceptions in the bulk commodity areas comprising coal, non-metallic minerals, metallic ores and metals, and petroleum.
A relatively strong consumer market and very constrained truck capacity have been tailwinds for domestic intermodal rates and volumes. In the meantime, a surge of imports from overseas for replenishing inventories coupled with the normal peak for the Christmas shopping season have tested both truck and intermodal capacity at times.
Air Freight To See Significant Increase In Demand
Consumer spending will certainly be a driver of air cargo volumes and higher rates. Also, the worldwide distribution of Covid-19 vaccinations will add pressure on demand for international capacity. Rates are already rising and will continue should there be changes in import/export regulations, especially in the international air space. Express and regional service carriers should benefit as more vaccines become available and more pressure comes from every community for access to these drugs and rates will rise accordingly.
Belly space on passenger airlines is very tight. Low ridership has limited the volume of flights dramatically. Delta and American have announced cuts of more than 100,000 flights due to low demand in December. A combination of ongoing epidemic fears and belt-tightening by consumers is likely to continue through 2021.
Market conditions are currently still volatile, forcing businesses to adapt their operations accordingly. However, following 2020’s obstacles, many businesses are in a better place to weather any storm, be it another round of lockdowns or further economic turmoil.
For businesses looking to strategize even further, there are myriad ways to streamline supply chains and beef up your operations to withstand anything 2021 might throw at the industry. And whether you’re in need of supply chain assistance or logistics management Land Link Traffic Systems is here to help.
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