Truckload Market Forecast: Q3 2021 Spot & Contract Freight Rate Trends

Q3 2021 coyote curve market guide header
Like every quarter over the past year, Q2 2021 has been a wild ride.

And the outlook for the truckload market in Q3 doesn’t look like things will settle down.

On the (incredibly) bright side, the economy is opening back up as vaccinations increase globally and COVID-19 restrictions start to lift in the U.S.

But this bullwhip effect is causing a lot of volatility and difficulty for supply chains everywhere.
 

What does this all mean for shippers?

Read the Q3 2021 Coyote Curve® forecast to find out.

 

New to the Coyote Curve?
The Coyote Curve is our proprietary spot rate index built with data from over 10,000 daily shipments. If you want to learn more about the truckload market or how we build the Coyote Curve, check out these helpful resources:

Part I: Supply & Demand 101: Basics of Truckload Market Economics
Part II: Understanding the U.S. Truckload Market
Part III: Explaining the Coyote Curve

 

Q1 2021 Truckload Market Performance

After hitting a new record peak in Q4 2020, driven by unprecedented e-commerce demand, we saw our index dip slightly in Q1 2021.  

This is generally — but not always — the softest quarter of the year, with post-holiday shipping slowing down.

Important to note: Q1 marks the last full quarter of (mostly) pre-pandemic year-over-year (Y/Y) comparisons. From here, it starts to get more interesting.
 

Related: Learn the 7 Stages of a Truckload Market Cycle

 

Q1 2021 Spot and Contract Rate Truckload Market Trends
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Q1 Truckload Spot Rates Came Down from a Record Peak
  • Q1 2021 spot rate performance: 45.3% Y/Y
  • Trended down from Q4 (49.7% Y/Y)
  • Performance was in-line with our forecast through Q1 (but Q2-to-date is a different story).
     
Q1 Truckload Contract Rates Trended Up, Heading Back into Inflation
  • Q1 2021 contract rate performance: 8.3% Y/Y
  • Q4 2020 contract rate performance: -0.3% Y/Y
  • Trended up from Q4 (-0.3 Y/Y) and broke into Y/Y inflation for the first time since Q2 2019
  • In-line with our forecast
     

Takeaway: In the last quarter of pre-pandemic Y/Y comparisons, the Q1 2021 spot market rate index trended down slightly, while the contract rate index shot up substantially (both in-line with our forecast).

 

Current State: Volatility Reigns Supreme (& It Might Stay that Way for a Bit Longer)

In our last quarterly update, we predicted that, after hitting a new record high, we were likely past the peak and heading back towards the deflationary leg of the cycle.

Unfortunately, we called it a bit early, and the COVID-19 pandemic had another round of volatility to throw at supply chains.

Through Q1 2021, our forecast stayed on target, and our spot index did indeed dip back down, only to shoot up again in Q2.

We won’t know for sure until the end of June, but so far all indications are pointing towards yet another record peak.

  • Q2 Spot Rate Performance (as of 5/25): 63.3%
  • Q2 Contract Rate Performance (as if 5/25): 12.7%

 

Q2 2021 Coyote Curve Truckload Market Spot & Contract Rates
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6 Factors Contributing to a Chaotic Truckload Market

What is driving the rate increases? Let’s take a quick look at a few factors that are adding to the volatility.

1. Year-over-Year Comparisons

Before we dive deeper into the figures, keep in mind what happened in Q2 of last year — a sharp spike in early April panic-buying, followed by a collapse as bad as anything since the Great Depression.

By comparison, these improvements are going to look more extreme than they really are. Whether we’re looking at truckload rates or economic factors, we’re basically just returning to a pre-pandemic state.
 

2. Resurging Economy

Vaccinations are increasing globally and COVID-19 restrictions are lifting in many parts of the U.S. Consumers are more fully engaging in the economy, driving increased production.

But supply chains have become fragmented after a year of start-and-stop demand. From raw materials through finished goods, companies are now struggling to keep up with a surging economy.
 

3. Suez Canal Blockage

From March 23rd to March 29th, the Ever Given, a 20,000 TEU container ship, was jammed in the Suez Canal, blocking traffic in this critical corridor for international trade.

The blockage delayed over 200 ships, creating a ripple effect of late deliveries on thousands of international shipments.
 

4. Los Angeles Port Congestion

U.S. ports, particularly the Port of Los Angeles (with the Port of Long Beach, the busiest in North America) has experienced extreme congestion for the past several months.

These delays impact businesses waiting on product, slowing down their ability to manufacture and ship. It also has a domino effect on transportation.

Many shippers transload their imported freight from international containers to domestic 53’ intermodal containers before shipping inland.

Right now, domestic intermodal capacity is extremely tight. The Union Pacific Railroad, one of two Class I West Coast railroads, has already instituted peak season surcharges — a first for this early in the year.

With higher intermodal rates, less container capacity, and delayed shipping, more of this freight is moving over-the-road in a truck instead of on the rail.

Takeaway: Intermodal, power only and truckload capacity are all unseasonably tight for outbound southern California.


5. DOT Week

The Commercial Vehicle Safety Alliance International Roadcheck (aka DOT Week), is a planned, annual event that causes a short-term capacity crunch.

This year, the international Road Check was from May 4th through May 6th.
 

6. Produce Season

Every year when the weather heats up in early spring, seasonal produce freight starts to cause regional capacity shortages, beginning in southern Florida and Texas in March and April, then heading north throughout the summer. 

Learn more about how produce season impacts truckload rates and capacity.

 

Key Q2 2021 Economic Indicators Driving the Truckload Market

Let’s dive a little deeper into supply and demand trends that are driving current activity in the truckload market. 

Demand Trends (Shippers)

Some good news for the U.S. economy: several macroeconomic indicators (Consumption, Industrial Production, Inventory-to-Sales) are pointing towards some form of a v-shaped recovery. 

 

Q2 2021 truckload market economic indicators
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In Q1 2021, Consumer Spending (which drives Industrial Production, which in turn drives truckload shipping) is up to 1.6% Y/Y from a trough of -10% in Q2 2020.

This is now the second quarter in a row where the signs are pointing in the right direction.  

Again, we’re still comparing against Q2 of last year, when demand largely tanked, but it appears to be getting back to pre-recessionary figures.

Through April, Industrial Production (IP) is up to 14% Y/Y, from a trough of -14% in Q2 2020.

Inventory-to-Sales ratio dropped down to 1.3 through April from 1.51 peak (also in Q2 of last year).

Lower inventory levels compared to overall sales means that shippers have less product sitting in their warehouses.

As consumer spending (aka consumption) continues to pick up, shippers will continue ramping up production more (aka IP) to restock shelves and meet demand. The more shippers produce, the more freight will need shipping.

In short, lower inventory-to-sales is a catalyst for increased truckload volume.

Takeaway: Demand for freight shipping is trending up, reaching towards pre-pandemic levels.

 

Supply Trends (Carriers)

The two main indicators we track to monitor the health of the supply base are fuel (diesel) prices and Class 8 truck orders (semi-truck purchases).
 

Fuel Rates

Fuel, which represents ~30% of a carrier’s overall cost, can have a huge impact on profitability if it rises or falls faster than rates.

Over the past several months, fuel has been trending up, rising to +28.9% Y/Y as of late May, but for most of the last year, fuel rates dipped to their lowest level in several years.

Though rising, they are returning to a pre-pandemic level, and with spot rates still elevated, this isn't currently an issue. 
 

Class 8 Truck Orders

Class 8 North American truckload orders continue to spike, which is very typical at this stage of the cycle.

Carriers that made it through the very tough Q1 & Q2 2020 market conditions have been able to take advantage of higher rates, beginning in the back half of last year. We are seeing them invest in adding more capacity.

However, truck order fulfillment has been slow.

New capacity doesn’t typically hit the road for six to eight months after the order. With current supply chain issues for truck manufacturers, microchips being one of them, those new trucks are taking even longer than usual.

 

Q3 2021 truckload market cycle vs truck order, coyote curve
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Driver Shortage

Buying a truck is one thing — getting a driver in the seat is another.

The pandemic has caused several issues in the labor market, contributing to an underlying driver shortage already underway.

While this looks like the same pattern of overshoot and collapse we’ve observed in the previous four market cycles, increased difficulty in adding drivers may contribute to an extended stay in market inflation — we’ll find out more in the coming months.

You can use data to understand the driver shortage with insights from our original research study, done in partnership with labor market experts at EMSI.

Takeaway: Supply is coming into the market to meet demand, but with pandemic-driven labor market and supply chain issues, it’s taking longer than in previous cycles.

 

Q3 2021 Truckload Market Forecast

Over the past year the truckload market cycles have, over the long run, behaved in the same basic pattern as always, but getting the approximate timing has been much more difficult.

There is so much volatility, and things are moving so fast.

Our index has had several unprecedented events.

  • Hit a new record at the close of Q4.
  • We’re likely going to top that record at the close of Q2.

But we have seen spikes before.

  • In the aftermath of the 2014 Polar Vortex.
  • In 2018, Hurricanes Harvey and Irma hit back-to-back, right when the cycle was at its peak.

The drop in the spot market is going to come — it’s just a question of whether that comes in Q3/Q4 of this year, or gets pushed into early next year.

All the factors we outlined previously will determine when it happens.

 

Q3 2021 Truckload Market Forecast
Download these charts as high resolution slides for your next presentation.

 

Q3 Spot Truckload Rates

An important point to keep in mind: When the market turns, the chart makes it look like spot rates are going to fall off a cliff.

That severity of the drop is in large part due to the year-over-year comparison. The impact to average truckload rates will not be nearly as substantial as the chart makes it look.

The sequential drop (as in compared to the previous quarter) will likely only be a difference of 2% to 5% in overall spot rates.
 

Takeaway: We are likely at or near the cycle’s peak.

Even though the index may show a significant drop in the near future, we won’t be entering a new world of low rates and ample capacity.

A lot of the drop will be a product of year-over-year comparisons.  


Related: How to Get the Perfect Spot Rate: 8 Rules for Freight Quoting

 

Q3 2021 Contract Rates

As far as contract rates, they are also heading to record highs.

Spot market activity in the months leading up to bids is the largest factor driving contract rate increases (or decreases) — contract generally lags spot by one-to-two quarters.

We anticipate contract rates to continue trending upwards with continued inflationary spot market activity.

 

Prepare Your Supply Chain for Q3 with LTL & Truckload Insights

Watch the Q3 2021 Coyote Curve forecast — now available now on demand. 

In the recorded panel, you will learn from industry experts from Old Dominion Freight Lines and Coyote, as they discuss how a resurgent economy is impacting LTL and truckload shipping.

Get actionable next steps you can apply to your business
 

Watch On-Demand Webinar Now

 

About the Author

Sean Fahey

Sean Fahey is Senior Vice President of Yield Management at Coyote Logistics, where he oversees pricing strategy and market forecasting. He regularly contributes his truckload market knowledge and insights in quarterly Coyote Curve webinars and other industry events.

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