Schneider CEO Rourke predicts higher TL rates well into 2021

The confluence of COVID-induced disruptions to supply chains and unpredictable trucking demand levels will mean sharply higher truckload rates well into 2021, a leading TL executive is predicting.

Mark Rourke, president and CEO of Schneider, the nation’s second-largest truckload carrier, said the nation’s supply chains are in “a highly unique period” in our recent history.

Those changes are playing havoc with usual, predictable seasonal patterns of freight and are causing higher costs for carriers, who are passing on those costs to shippers in the way of higher rates.

“We have way more demand than we have capability and capacity to handle,” Rourke told LM. “The way we’ve had to ramp down (in April) and then ramp up (in late summer) is fairly unprecedented in my 33 years in this industry.”

Rourke explained that supply issues affecting various industries have made capacity planning difficult if not fairly impossible for carriers. This has made it difficult for carriers to move equipment and drivers into areas that need them.

Various industries, including health care and education supplies, have undergone widely varying peaks and troughs of demand since the COVID-19-induced economic slowdown occurred in late March. That slowdown, which caused freight levels to fall sharply in the spring, was followed by a rapid ramp-up in demand in summer and early fall, Rourke and other TL executives have confirmed to LM.

“Shippers understand capacity is tight,” Derek Leathers, Vice Chairman, President and Chief Executive Officer at Werner Enterprises, the nation’s sixth-largest truckload carrier, said. “But nobody expected it to be this tight and this unpredictable. We thought, pre-COVID, that demand would be pretty robust in March. We thought by June 1 that it would be noticeably tighter than 2019. When COVID hit, that threw a wrench in it.”

Leathers and other top TL executives say any semblance of reasonable freight demand planning has been turned upside down this crazy year.

“It’s in an agitated state,” Schneider’s Rourke explained. “Customers and carriers are discovering day to day how to make their best decisions based on the latest information. It’s fairly interesting, to stay the least.”

Even the best-run carriers like Schneider, which also use large rail-truck intermodal options for shippers and are well diversified across many industry sectors, can be caught off-guard even with years of planning. None of that helps in the unpredictable year of 2020, Rourke said.

“You have these networks that are a mess,” he explained. “You have certain areas where food or consumer demand are up 20% to 30%, but it doesn’t mean you have 20% to 30% more trucks. You just have dislocation between where you have trucks and where you want trucks.”

Early in the summer, intermodal demand fell off sharply but by the early fall that was “roaring back,” Rourke said.

“Those are daily battles that we all face,” he explained. “It’s not the demand picture; it’s getting your capacity in the right spots to move things. We’re going to have this the whole year.”

And that translates into higher rates, and often sharply higher, depending on specific lanes and city pairs, top TL executives confirmed. Spot rates in late summer had risen upward of 20% year-over-year, depending on lane and time of year.

“I would say the spot market leads generally,” Rourke said in early fall. “That escalated in the last 6-8 weeks. If we want to invest in additional capacity, the rate structure of the last couple years (2018-19) is not going to allow that. We need a restructuring on rates.”

That process has started, Rourke said, with many customers acting proactively to assure sufficient capacity in what could be any sort of peak season in 2020 and full year in 2021.

“It’s going to set up a very difficult peak season,” Schneider’s Rourke predicted. “I would expect there will be contractual rate corrections over the next few quarters, depending on the cycle.”

Exacerbating this is the Just-in-Time delivery systems that were disrupted. Inventory levels are so low that manufacturers and retailers are being forced to refill them, often at higher costs.

“Inventory levels are so low,” Rourke said. “We haven’t talked to any customer who feels good about their inventory levels. You will need a quarter or two of high demand levels to get inventories at more reasonable levels.”

Another factor, he said, was the change sourcing of that inventory. Since the pandemic tightened supplies of necessary COVID-related health equipment, manufacturers have been changing single-sourcing of key products after getting caught short on product emanating from the Far East.

“Where you source goods is changing,” Rourke said. “There are some permanent things that changed. No doubt about it.”

Shippers can be counted on pushing back, at least a little bit. In early fall, Wal-Mart, the nation’s largest retailer, said it was requiring suppliers and carriers to deliver all orders by “must-arrive-by” dates 98% of the time or be fined 3% of the cost of the goods.

“One of most interesting things I’ve observed is how advanced the whole thought of e-commerce has become by leveraging purchases online and customers picking up and fulfilling them from brick and mortar stores,” Schneider’s Rourke said. “COVID has advanced this trend by a couple of years. That’s good for truckload carriers because the product still has to get to store. It gets inventory to consumer but in a permanent change that’s been accelerated by COVID. It’s amazing how fast we all have adapted.”