Q4 Truckload Market Forecast: Spot & Contract Freight Rate Trends

In the U.S. truckload market, volatility continues to be the rule 20 months into the COVID-19 pandemic.

Throughout Q3 2021, consumer demand continued its upward climb, but as demand rose, carrier capacity — the supply side of the equation — has been suppressed by a number of interrelated factors.

You can either watch the update or keep reading to learn everything you need to know to prep for Q4. You can also download the forecast slides to use in your next presentation.

 

Back Towards Equilibrium in the New Normal

While our proprietary Coyote Curve® rate index continued to trend down towards equilibrium, the market still feels unstable, and an upcoming Peak season won’t help.

Unprecedented backlogs at the ports, ecommerce mixed with resurgent brick-and-mortar retail, global supply chain fragmentation — you can expect Q4 to be another installment of the “new normal” that we’ve lived through since March 2020.

In this update, we’ll try and make the current landscape simple and clear for you, then lay out what you should be thinking about as you head into 2022 planning season.

Here’s what you’ll learn in this update:

 

New to the Coyote Curve?
The Coyote Curve is our proprietary spot rate index built with data from over 10,000 daily shipments. To make the best use of the forecast, it's helpful to know how the trucking industry works. Check out our guide, Understanding the U.S. Truckload Market, to build a foundation.

 

Q3 2021 Truckload Market Performance

After unprecedented volatility drove our spot index to a record peak in Q2, it appears as though the truckload market cycle is moving in the same pattern it always does, netting its second consecutive quarter in a downward trend.

Q3 2021 truckload spot and contract rate performance

Download these charts as high resolution slides for your next presentation.
 

It is important to note that both the astronomical Q2 peak and the Q3 decline are, in large part, due to the wonky pandemic-era year-over-year comparisons.

Keep in mind: the Curve measures year-over-year truckload market rate trends.

It is a framework that shows how supply (carrier capacity) and demand (shipper freight) interact in multi-year cycles, giving an overview of macro movements. It does not show quarter-to-quarter (sequential) trends.
 

So what does all that have to do with Q3 2021?
  • Though the index is trending downwards, rates were still up (inflationary) in Q3 2021 compared to Q3 2020, just less dramatically than was the case in Q1 and Q2.
  • Sequentially (quarter-to-quarter) rates have actually trended slightly up throughout 2021, up 4% Q1 2021 to Q2 2021, and up 8% Q2 2021 to Q3 2021.
  • While the overall market cycle is heading down, don’t expect a big decrease in your Q4 spot rate spend.
     
Q3 Truckload Spot Rates Trend Down After Record Peak
(But Still Inflationary)
  • TL spot rates at end of Q3: 14.0% Y/Y
  • Record peak in Q2 was 68.1% Y/Y
  • Downward slope throughout Q3 was less steep than initially projected due to ongoing supply volatility
     
Q3 Truckload Contract Rates Have Likely Peaked
(But Still Inflationary)
  • Q3 2021 contract rate performance: 12.0% Y/Y
  • Q2 2021 contract rate peak: 13.9% Y/Y
  • Downward trend in Q4 and Q1 2022 would be in line with past behavior (typically lags spot rate index)
     

Q3 Takeaway: While both the spot and contract rate indexes have peaked, we’re still well into an inflationary rate environment — it’s just starting to stabilize a bit after a wild ride throughout 2020 and the first half of 2021.

Don’t expect your actual spend in Q4 to decrease just yet.

 

Demand: Key Economic Indicators Driving the Truckload Market

The U.S. economy continues to roar back from its 2020 recession. Across the board, demand indicators reflect a willingness to spend and a desire to return to normal.

Q3 2021 economic indicators impacting the US truckload market

Download these charts as high resolution slides for your next presentation.
 

In Q3 2021, consumer spending (which drives industrial production, which in turn drives truckload shipping) is up to 16.2% Y/Y from a trough of -10% in Q2 2020.

After some promising gains in Q1 and Q2, spending skyrocketed as economies reopened across the U.S. Spending has reached levels in excess of pre-pandemic highs and look to continue to rise heading into Peak Season.

While industrial production has come down somewhat from its Q1 peak, it still sits at 6.2% above the end of Q3 2020, and also increased sequentially in both July and August. September saw a bit of a decrease due to the microchip shortage and lingering Hurricane Ida impact.

Inventory-to-sales ratio has remained steady — at historic lows — throughout 2021 at 1.25. This low number means that shippers are still struggling to replenish product in their warehouses, as sales is outpacing inventory replenishment.

This strong demand is also driving imports, which are skyrocketing as retailers stock up for the holiday season, contributing to port congestion (more on that below).

All of these factors are driving demand for truckload freight and straining supply chains that were already under stress.

Economy Takeaway: Consumer Spending remains healthy, driving increased Industrial Production and Imports, and keeping the Inventory-to-Sales Ratio low.

All this contributes to strong demand for truckload shipping that doesn’t show signs of slowing down as Peak Season approaches.

The supply side of the equation is another story.

 

7 Factors Contributing to a Chaotic Truckload Market

Demand is strong, and the economy seems to be recovering. So what issues are contributing to all this volatility in the truckload market? What is stalling the rate stabilization?

Most of these are well documented, front-page news stories, but let’s quickly summarize all the factors that are causing the chaos.
 

1. Long Class 8 Truck Backlog (Microchip Shortage)

Class 8 tractor orders remain elevated over 2021 levels (by around 26% y/y)

This is common at this point in the market cycle; however, the requested capacity is unlikely to hit the road anytime soon — possibly not even by the end of 2022.

Ordering a truck is one thing — building it is another.

class 8 truck orders vs. truckload market cycles in Q4 2021

Download these charts as high resolution slides for your next presentation.
 

The ongoing microchip shortage continues to extend the lag time for North American Class 8 truck orders.

While the time order backlog-to-build is typically six to eight months, this number has ballooned over the last year.

The timeline for order fulfillment is now around 10-13 months, rising as high as a remarkable 20-month delay during July.

As semi-conductor and other raw material shortages persist, it will be quite some time before the rubber literally meets the road.
 

2. Commercial Truck Driver Shortage

The truck is only half the equation — getting a driver in the seat remains just as challenging as the equipment.

While hiring is trending up for commercial truck drivers, demand looks to continue to outpace supply throughout Q4.

Carriers continue to struggle to hire heavy-duty tractor-trailer drivers, needing an average of nine job postings to hire a single driver.

The industry is facing competition for a dwindling labor supply from other blue-collar jobs with less demanding travel schedules (construction, warehousing). Carriers are also struggle to replace an aging workforce with younger drivers; only 20% of the current workforce is under 45.

And it's showing up in our own data; since the start of the pandemic in March of 2020, we've seen total posted trucks in our system decrease by 40%. 

A few potential headwinds to the driver supply:

  • The FMCSA Drug & Alcohol Clearinghouse, which could disqualify more candidates.
  • Potential COVID-19 vaccine mandates, which drivers may opt out of, and choose to quit or retire.

Related: Take a deep dive with our original driver shortage research study

 

3. Rising Fuel Costs

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

Fuel remains elevated at about 40% y/y at the end of Q3. Prices are tracking at about $3.50/gal, which is above the 10-year average of about $3.20/gal (but still within normal ranges).

These elevated costs likely won’t delay a deflationary leg all by themselves, but they could contribute to an elevated floor at the bottom of the cycle trough, and at the very least will keep spot rates from decreasing in the immediate future.
 

4. Port Congestion

Perhaps the most widely publicized supply chain disruption, the heavy congestion outside the ports of Los Angeles and Long Beach continues without immediate relief in sight.

As of this writing, more than 50 shipping vessels were anchored outside these two Southern California ports, unable to dock and unload.

Retailers have responded to the ongoing backup by ordering more product from overseas to meet their shortfalls, which has exacerbated the problem.

Beyond the sheer number of ships, there is a chassis shortage (more on that below) and a capacity crunch at Inland Empire warehouses.

So even if the ship can dock, they still need a chassis to move the container out of the port and a warehouse to store and/or transload the freight.

With the holidays right around the corner and imports spiking, it might get worse before it gets better. Even the White House is taking notice, but this will take a few months to untangle.
 

5. Chassis Shortage

Chassis (a steel frame with wheels you drop shipping containers on to move them over-the-road) are in short supply in many critical locations.

With huge year-over-year increases in shipping volumes at seaports and rail ramps, there just isn’t enough chassis to accommodate, snarling intricate shipping, delaying intermodal freight and compounding volatility elsewhere in supply chains.

Currently, chassis equipment is running roughly 30% below replacement, and replenishing supply is being impacted by a tariff on equipment imports from China. This shortage should continue to push demand from intermodal to truckload, further straining the truckload market.
 

6. Hurricane Season

Numerous severe storms damaged infrastructure and caused capacity to be parked or rerouted during Q3. The most notable of these was Hurricane Ida.

The strongest storm to hit the Gulf Coast region since Hurricane Katrina 16 years ago, Ida damaged facilities and disrupted service across much of the South and Mid Atlantic regions.

And hurricane season isn’t quite over yet — any further natural disasters could create another spike in market volatility.
 

7. Peak Season

Despite everything out of the ordinary in the truckload market at present, some things never change. We’re heading into Peak Season once again, and demand is accelerating apace.

The seasonal capacity crunch looks to be even more extreme this year than in years past, both due to the factors outlined above and because of a sharp uptick in consumer demand compared to Q4 2020.

Volatility Takeaway: Demand remains strong, but carrier supply is struggling to keep up, taking longer than in previous cycles.

Equipment (semiconductors, trucks, chassis), people (labor shortages) and seasonal factors (hurricanes, peak season) are combining to create a challenging shipping environment.

With no immediate solution coming in Q4, continue to expect volatility and prioritize flexibility.

 

Q4 2021 Truckload Market Forecast: Volatility Continues to Reign Supreme

It took a bit longer than we expected, but this truckload market cycle is finally starting to resemble its similar pattern.

Even though we’re definitely past the cycle’s peak and heading back towards a deflationary rate environment, actual rates are still inflated y/y, and the capacity that can drive them back to deflationary numbers is struggling to hit the road.

Normal shipping patterns are still trying to recover — compared to the start of the pandemic in March 2020, overall spot freight volume (one-off shipments) is up 48%. 

Adjusting the Forecast

Long story short: it’s tighter than we typically see during this leg of the market cycle. As a result, we’re flattening out the forecast, pushing back the beginning of the deflationary leg from Q4 2021 to Q2 2022.

Additionally, because so many of the current issues hampering capacity (outlined above) will likely extend into next year, we now predict that the trough of this cycle will be shallower than usual, deflating to around -10% y/y inflation vs. the original forecast of -20%.

revised Coyote Curve truckload market forecast in Q4 2021

Download these charts as high resolution slides for your next presentation.
 

An important point to keep in mind: our index makes it look like spot rates are falling off a cliff.

The severity of the drop is due to y/y inflation starting to even out — that does not mean your spot rates in Q4 will be significantly lower than Q3.

Contract rate inflation has also slowed, but those move in much slower, less dramatic swings, and typically lag spot rate performance by a quarter or two.

As long as spot rates continue to trend down, expect contract rates to head back towards a deflationary environment later in 2022.
 

Q4 2021 Coyote Curve truckload market forecast spot and contract rates

Download these charts as high resolution slides for your next presentation.
 

Forecast Takeaway: a deflationary rate environment — for both spot and contract — is likely coming in 2022, but it will be delayed and diminished.

Furthermore, though our index is pointing down, don’t expect to see capacity loosen up and rates plummet in Q4.

 

Get the Best Rates You Can in Any Market

No business — no matter how big — has control over the truckload market.

Though you may not be able to guarantee capacity and stable rates, there are some things you can do.

If you follow some basic best practices, you can set your supply chain up for success, whether you’re getting a one-off spot quote or preparing for an annual RFP. 

Check out a curated collection of all Coyote's best freight pricing resources to get ready for Q4.

Show Me The Freight Pricing Resource Library

 

About the Author

Sean Fahey

Sean Fahey is Senior Vice President of Yield Management at Coyote Logistics, where he oversees pricing strategy, procurement 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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