Brokers expect higher contract rates for 2022

Freight brokerage firms expect contract rates to continue to rise this year, with a slowdown not expected before the end of the year.

“I think we’re definitely going to see continued strength throughout the year as capacity remains tight and supply chains remain quite disrupted,” Evan Armstrong, president of third-party logistics market research firm Armstrong & Associates, says Transport Topics. “The real key will be what happens in 2023.”

Armstrong noted that while growth may slow next year, factors likely to keep prices under pressure include diesel prices, strong consumer demand, international supply chain issues and fuel shortages. truck drivers. He suggested that all of this will have an effect on corporate margins.

“Operating costs and labor costs are going up,” Armstrong said. “The traditional gross margin of 15% has now deteriorated to between 13% and 14% on truckload business.”

Bloomberg Intelligence and released a survey on Feb. 23 that found about 56% of brokers expect contract rates to rise over the next six months. Around 75% expect factors such as restocking, increased economic activity, supply chain disruptions and driver availability to help propel growth.

“We’ve been in this bull market for just over 18 months,” said Drew Herpich, chief commercial officer of Nolan Transportation Group. “I think the big question now is what happens to those contract rates in the future. In those situations, obviously, the trumps are really driving that.

In addition to the driver shortage, Herpich noted that insurance premiums are contributing to rate increases. He thinks brokers will likely see rates rise in the high figures at around 10% year-over-year.

“People are getting a little more aggressive now that the market is still in this bull run, but [are] predicting a bit of a fallout in the second half of the year,” Herpich said.

Herpich noted that an easing of pandemic concerns has helped bring capacity back to market over the past six months, although delays persist. He also noted that customers have more technology to run RFP cycles.

“What you’re seeing right now is a lot of customers seeing what the rates are,” he said, “and they’re going to continue to do that like a heavy cycle until they start to see some of those rates go down and then start to really lock in their annual tenders.

“We have seen contract rates increase steadily over the past few months,” Steve McDonald, chief operating officer at Averitt Integrated, told TT. “I expect this trend to continue through the second quarter. However, I think it is possible that the market will start to see some stabilization in contract rates as we enter the third quarter.”

“The contract market follows the spot market, and we all know how volatile it has been,” Ronnie Davis, vice president of North American surface transportation at CH Robinson, told TT. “The world is on the move. The contractual rates will be constantly changing. Historical patterns simply do not hold. The Stephens Index is a fairly good proxy for the contract market, and in about 75% of quarters dating back to 1995, the mileage rate has risen between zero and 5%. In just one quarter last year, the rate per kilometer increased by 11%. »

“After two unpredictable years, shippers are looking for consistent freight coverage,” Kerry Byrne, president of Total Quality Logistics, told TT. “The market dynamics that drive up the cost of purchased transportation – inflation, driver shortages, backlogs – are understood and beginning to be accepted. Mitigating risk by obtaining contracts at higher rates that take into account known fundamentals seems to be a strategy that some shippers are adopting.

Byrne warned that disruptive new market dynamics are a wildcard in this strategy, such as Russia’s invasion of Ukraine.

“Contract freight rates are at historic highs,” BlueGrace Logistics said in a statement to TT. “Increased volatility in future markets will determine the direction and elasticity of prices. Should seasonality, weather disruptions, the COVID-19 pandemic or other supply chain threats materialize, pressure on the increase in contractual rates would continue.

“Last year, the supply chain crisis and shortage of drivers contributed to an increase in contract and spot rates,” Bharath Krishnamoorthy, founder of the freight brokerage financial platform, told TT. Axel. “The supply chain situation has not improved significantly and we expect rates to continue to increase in 2022.”

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