Shipper survey shows capacity to tighten, freight rates to rise in 2022

Shippers can expect this year to be a continuation of 2021 with capacity constraints and high freight rates amid shortages of transportation equipment and qualified truck drivers, a trucking executive said.

In a recent webinar, Kent Williams, executive vice president of sales and marketing for Cookeville, Tenn.-based carrier Averitt Express, discussed the results of its seventh annual State of the North American Supply Chain Survey. Williams said the survey of more than 1,800 shippers was completed in October, but the supply chain challenges have since worsened as shippers struggle to find capacity and cope with rising rates across all transportation modes, especially the ocean carrier market.

The survey showed that shippers expect capacity constraints to worsen in 2022, compared to last year, while freight rates rise. Still, some shippers were optimistic that freight demand would fall and congestion would ease after the holidays.

“That does not appear to be the case,” Williams said. “The U.S. imports are still coming in at more than 2 million containers a month, and that just outstrips our capacity. It’s more than the ports can handle. It’s more than the local dray providers can handle. It’s more than the third-party warehouses and distribution centers surrounding the ports can handle, and more than the trucking around those can handle.

“As long as that continues, I don’t see anything changing right away,” he added. “I do think that creative and innovative companies are trying to find ways to add resources as we are.”

In 2021, shippers saw service levels fall and costs increase. He noted that Averitt met customer expectations as well as any other company in the marketplace. Carriers’ costs also increased while struggling to find the needed drivers and equipment.

According to the survey, 37% of shippers experienced capacity issues last year, and this is a 12 percentage point increase from the previous survey and the highest percentage in the past seven years. Also, 52% of shippers said they experienced rate increases last year.

Meanwhile, 76% of shippers said they expect to ship more in 2022, compared to 2021. This is 3 percentage points higher than the previous survey.

“With that continued growth, the industry will surely face ongoing challenges in the months ahead when it comes to port congestion and domestic capacity constraints,” according to a report on the survey.

At the onset of the pandemic, when customers were shutting down, Averitt had to furlough drivers, Williams said. Some retired instead of returning to the workforce. Also, driver training stopped, including in-cab, in-house and at schools. He added the Drug & Alcohol Clearinghouse contributed to more than 100,000 drivers no longer eligible to drive following a positive drug test and that employers were notified of the results.

“There’s still 80,000 drivers short, and that number is probably growing,” he said. “There are certainly new guys and ladies entering the workforce, but not at the numbers needed to replace retiring Baby Boomers.

“Then, the original equipment manufacturers, the people we all buy our orders from simply cannot keep up. One of our two major tractor vendors cut our order by 30% this year. They certainly didn’t want to do it. They didn’t want to make 30% less sales… But they couldn’t get the parts. A lot of it is the chips needed on the tech side, but it’s other components as well.”

Williams said the company has addressed the shortage by focusing on its core service areas and establishing a model that allows over-the-road drivers to participate in relay routes. As the carrier mostly operates in the South, he explained that it would keep its drivers from hauling freight in areas where it wasn’t established.

“We do a better job of taking care of them when they are in our network,” he explained. “We have our infrastructure built, we have our driver support centers, we have secure lots, parking, (and) we can communicate with them a lot better. We’ll have places where they can exercise, [watch] TVs, [do] laundry…”

The company is setting up relay centers and secure parking areas to allow over-the-road drivers to hand off the load to another driver to complete the shipment. The new model is expected to allow the drivers to be home each night or at least every other night.

“Not all drivers want to be home every night,” he said. “Some enjoy the freedom of getting out there on the road and being out for a week at a time. We try not to have any of our drivers out for more than a week at a time. That’s the goal — get them home every weekend.”

About 50 drivers are participating in the new model allowing them to be home more quickly. Williams said the company plans to expand the number of drivers in it.

The survey also showed that some shippers had to use rail transportation or air freight because of the tight trucking capacity.

Williams noted that most shippers don’t want to use air transportation because of the cost, but they had to use this mode because they couldn’t wait any longer. Also, he said, as ocean freight became more expensive last year, the additional cost to move freight by air didn’t seem as high. Shippers expect the trend to continue into 2022, the survey shows. But Williams expects it to moderate. He said domestic transportation is improving, but U.S. ports, especially on the West Coast, continue to see a backlog of shipping containers.

“I don’t believe it’s any better,” he added. “The ships are just moving slower across the ocean so they’re all not off the coast of L.A. where they add to the pollution. Some have shifted to the East Coast ports, but we’ve now started to see backlogs in Charleston, (S.C.), and Savannah, (Ga.)”

According to the Cass Transportation Index Report for January, the backlog of containerships off Southern California fell to 78 as of Feb. 9 from a peak of 109 in January, but backlogs have been rising at other U.S. ports.

The shipments component of the index shows the impact the COVID-19 omicron variant had on U.S. freight volumes. The shipments index fell 10.8% in January, from December, and was down 2.9% from the same month in 2021. However, the decline was not a result of demand as inventories remain lean and consumer balance sheets strong.

“The 7.4% (month-over-month seasonally adjusted) drop in January in the shipments component of the Cass Freight Index is about as good an answer as we have to the question of how big an impact omicron-related absenteeism and quarantines had on the freight economy,” the index shows. “While these effects are lingering in February, they are beginning to fade, and we expected a rebound in the coming months as the case counts fall sharply.”

Williams said transporting freight via rail might be a shipper’s first choice, but railroad backlogs have led shippers to consider whether to move their freight via truckload. He said shippers would like to use rail because it’s cost-effective for longer hauls; however, shipment arrival times might determine what mode a shipper will use.