Early 2022 TL Rate Predictions Pointing Higher Again

Early predictions are pointing to truckload rates being up again in 2022. The outlook isn't overly surprising given the industry's labor and equipment challenges, but another increase, following a large move higher in 2021, is likely to establish new highs for the industry.

If the current trajectory holds, 2021 full-year per-mile rate metrics for the big carriers will be up by midteen percentages. Revenue per mile (excluding fuel) was up 17.6% year-over-year during the second quarter for the publicly traded carriers. Numbers were likely only a little shy of that mark for most fleets across the industry, according to the latest report from Cass Information Systems CASS.

Werner sees rates up 3% to 5%, maybe higher

"If you look at the setup right now, if you look at what's going on with drivers, if you look at what's happening in truck availability and trailer availability at the OEM level, and if you look at current inventory levels, the current demand cycle, the multitude of structural constraints on the capacity side, we really don't see any line of sight other than rates being incrementally up in 2022," Derek Leathers, chairman, president and CEO of Werner Enterprises, told investors at an appearance at the Deutsche Bank 2021 Transportation Conference last week.

He said it's "too early to tell" how much rates will increase, but "our starting point is in that 3 to 5% range for 2022."

Chart: (SONAR: VCRPM1.USA). Seven-day moving average of dry van base rates (excluding fuel) under contract. Initial reporting is on a two-week lag. To learn more about FreightWaves SONAR, click here.

However, there is risk in the forecast … to the upside. "The market may dictate through a lot of different ways that that's too light," Leathers added. Inflationary pressures, not just labor, but throughout the economy, and the supply-demand imbalance lingering longer present catalysts for upside to the estimates.

Leathers said Werner Enterprises WERN wouldn't normally provide commentary on future pricing for the following year this far in advance, but the current dynamics remain heavily skewed against capacity additions.

Challenges attracting and keeping drivers delayed equipment delivery schedules from the manufacturers, and retailers still playing catch-up on inventories are just some of the reasons to believe that meaningful truck capacity won't be added quickly.

Carriers have been rejecting more than one out of every five loads tendered under contract for more than a year now. Record demand and an inability to seat trucks with qualified drivers have been the main reasons. Spot rates have remained elevated over the same time frame.

Chart: (SONAR: OTRI.USA)

Chart: (SONAR: TSTOPVRPM.USA)

Deutsche Bank DB analyst Amit Mehrotra shared a similar outlook with FreightWaves in a recent interview.

"It's a fluid situation, but what we are convinced on is that pricing will be positive in 2022, which is an impressive feat given midteens-plus pricing in 2021," Mehrotra said. "Our best guess is 3 to 5% yield improvement next year for the TL industry. We think this is the most reasonable assumption from where we stand today, with possibly some upside if the industrial economy really starts to get going."

As a side note, industrial production increased 6.6% year-over-year in July and is now only 0.2% below pre-pandemic levels. That was the fifth straight month of growth.

Werner's current guidance for the back half of 2021 calls for revenue per total mile in its one-way TL segment to increase 16% to 19% year-over-year. The outlook is somewhat inflated given the recent acquisitions of ECM Transport, which operates at shorter lengths of haul. That deal added 500 trucks and now accounts for 16% of Werner's one-way fleet.

U.S. Xpress outlook less specific

A recent outlook report from U.S. Xpress called for rates to remain high through year-end. The report said a combination of strong freight demand and a challenging driver market "is helping to keep a lid on supply."

"These conditions are expected to continue to support spot market rates in excess of contract rates and a strengthening contract renewal environment through the remainder of 2021," the report continued.

The outlook piece questioned when the "heightened rate and volume environment" will soften. "Without a doubt, a drop in the spot market is going to come. What remains to be seen is whether it'll happen in the winter, spring, or summer of 2022.

"Absent a dramatic cooling off of GDP growth or a miraculous influx of drivers and truckload capacity, the post-COVID ‘trough' during the next rate cycle could still land on rates that, in normal times, freight markets of the past would have considered ‘peak' rates."

Importantly, the spot market hasn't cracked yet. Contract rates (more than 90% of revenue for most large carriers) lag spot rates by one to two quarters in most cycles. If current market supply-demand fundamentals hold into bid season, which starts early every year, there is a high likelihood 2022 will produce another year of sizable increases.

Click for more FreightWaves articles by Todd Maiden.

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