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As shippers either figuratively or literally flipped the calendar page over to 2022, the hope was that at least some of the capacity crunches, driver shortages, labor issues and freight rate increases that took hold in 2021 would begin to heal themselves and create a more balanced transportation marketplace.
Unfortunately, this didn’t happen. In fact, many shippers are facing the same challenges that they were grappling with in 2021—now compounded by issues like the Omicron variant, persistent supply shortages and a world economy that’s determined to ramp back up right at a time when labor issues, a lack of equipment and other constraints continue to plague the transportation sector.
“We probably peaked in December but for the first quarter and probably even potentially into the second quarter we’re really not going to see any deterioration at all in the rate environment,” Avery Vise, vice president of trucking research at FTR Transportation Intelligence, told Transport Topics.
According to the publication, total truckload rates year-over-year are holding around 12% higher and are forecast to grow 2.5% to 3% throughout the year. That compares with a 29% rate increase in the spot market and a 14% rate increase for contracts in 2021.
“Given what the market is broadly experiencing and given the sustained demand for goods, seeing this record level of 28.2% off of a 2018 base didn’t shock us,” AFS Logistics CEO Tom Nightingale told Transport Topics. “Quarter-over-quarter, going up 3.2% in and of itself doesn’t seem shocking. But if you do the math on that, a 3.2% increase on a 25% base is a 12.8% quarter-over-quarter increase.”
By Air, Land and Sea
According to Logistics Management, soaring inflation, tightening cargo capacity, and a shrinking labor market only add up to one thing for today’s global logistics managers: the triple whammy.
“Indeed, industry analysts advise logistics managers to expect a steady escalation of rates and expenses,” Patrick Burnson writes. “The good news? A different mindset may now transform our freight transport culture and strategic planning.”
Ocean shippers haven’t been able to catch much of a break either. “Challenges of securing ocean capacity amid current logjams and prospects of hugely inflated ocean freight costs in 2022 are forcing logistics buyers to consider radical options,” Drewry’s Philip Damas told Logistics Management.
Damas goes on to say that ocean freight rates will not normalize until the systemic market disruptions in container shipping, caused by the pandemic, are significantly reduced. “The crisis has turned the ocean transportation sector into both a seller’s market and an inefficient, unreliable sector,” Damas told the publication. “Furthermore, shippers pay much more for a deteriorated service—a change which many logistics managers find hard to explain to their company’s leaders.”
Just one month into the new year, airfreight rates are also rising and primarily due to reduced capacity (namely because of decreased passenger jet capacity, which directly impacts airfreight) and congestion due to labor shortages among overwhelmed ground crews. “Strict quarantine restrictions in places like Hong Kong are also complicating operations for many air cargo providers,” Burnson adds.
“The air cargo market remains very demanding and constantly changing due to the regulatory pandemic landscape, outbreaks of new variants, and escalated vaccine distribution needs,” CLIVE Data Services’ Niall van de Wouw told Logistics Management. “And that means higher rates across the board. Matching capacity to need is going to be the key concern for shippers in 2022—almost regardless of price.”
Strategic Maneuvering
Companies that are dealing with high transportation costs, freight bottlenecks and supply chain disruptions are now extending the workarounds they adopted during the pandemic and taking on new strategies to ease their supply-chain pain in the new year, according to the Wall Street Journal.
For example, some organizations are storing goods in idle truck trailers while others are making deeper efforts to wring additional capacity from strained distribution networks or to trim costs by sourcing products and raw materials closer to home. “They are looking at every way they can to reduce their own costs so that they can make the equation work for them from a profitability standpoint,” Miami University Farmer School of Business’ Lisa Ellard told WSJ.
Companies like Home Depot and Walmart, for example, are chartering ships while smaller organizations like HomeLife Media have started buying jewelry, dog supplements and other items from U.S. suppliers (after the company’s ocean freight expenses multiplied and surging airfreight costs cut into the company’s profits), WSJ reports.
Many companies are also leaning on their experienced logistics providers for help, knowing that these operations have the right combination of people, processes, technology and industry connections to assemble a successful transportation approach in any business conditions.
DB Schenker is one of those providers. “As a global logistics provider, we’re taking all of the steps necessary to ensure that our customers have the capacity they require and at the pricing that works for them in any circumstances,” said Christoph Hemmann, EVP Head of Airfreight Americas. DB Schenker. “As we continue to work through the intricacies of the current freight environment, we’re of course looking forward to a more balanced market but always keeping our eye on the current challenges and planning for them.”
