Here’s the 7 things shippers need to know about the Q1 2021 freight market

Stay strapped in. The wild ride isn’t over yet.

Congratulations… you made it!

It’s 2021!  And the new year brings a fresh start, new opportunities, and hopefully greener pastures for everyone. 

It seems most everyone is ready to put 2020 in the rear-view mirror. 2020 will certainly be a footnote in all our lives. It will be one of those times where we say, "well, in 2020…"

And that definitely applies to the freight market.  

No one could have predicted the 2020 freight market. 

As we entered the year, it was supposed to be a year of modest growth.

Most market analysts were calling for rates and volumes to go up slightly. And some capacity was expected to leave the market after a really tough 2019 for carriers.

The big stories and forecasts were mostly around regulatory hurdles… more ELD disruptionDrug & Alcohol Clearinghouse violationsindependent contractor laws.

And some of that played out… but not like expected.

Instead, the economy, the freight market and humanity dealt with a global crisis.

For the North American freight market that meant wild fluctuations on levels never recorded before relative to volumes and rates. 

A look at the Cass Freight Shipments index over the last 12 years shows what a roller coaster ride this year was for volume:

Note: The massive drop followed by a huge spike in shipments encapsulated a 10-year swing in 10 months.

A look at the DAT Dry Van Rate chart over the last 5 years shows how rates measured up:

Note: 2020 saw the highest RPM in the last half-decade. 

DATs Load-to-Truck Ratio chart provides some context to available capacity over the year:

Note: We went from wildly available capacity in week 15, to a capacity crunch reminiscent of ’17 – ’18.

Relative to volumes, as we turn the page into this new year, FreightWaves Tender Volume Index sits at its highest mark in 3 years:

Note: Volume is still pumping and decidedly higher than both the ’18 and ’19 cycle.

And a final look at the Outbound Tender Rejection Index shows trucking capacity is indeed tight as we head into Jan:

Note: Rejections are double the ’18 and ’19 values.

Yes, the pictures tell a story… and what a story it was.

Despite the global pandemic, the lockdowns and the massive disruption they created, the freight business ends 2020 on a set of highs relative to volume, rates, load-to-truck ratios and rejections.

And from a shipper’s perspective, this is not necessarily good news.

The 7 Things to Expect in Q1

Newton’s Law of Inertia and the North American Freight Market

Newton’s first law of inertia states that an object in motion will remain in motion… and that’s exactly what will happen in the first quarter of 2021.  

Here are the 7 things you need to know about the Q1 freight market:

(1) There won’t be a normal winter lull this year

Several factors will drive unseasonably high freight volume in Q1.

Inventory re-stocking is at the top of the list. Retailer’s inventories were decimated last year by a massive change in consumer buying habits. High demand for food and beverage items, electronics, furniture, retail consumables, and home improvement goods made it hard to keep these items on the shelves. 

And while retailers were able to modestly re-stock going into peak, data now shows that they lack adequate inventory. One data point shows inventories declined 9% year-over-year while sales increased 9%. Inventory replenishment will continue well into 2021.

Industrial production and manufacturing are also coming back online. Last week’s Federal Reserve report noted additional increases in production. We are now at just 5% below pre-pandemic levels. While this is nothing to cheer about, industrial output combined with the other items noted in this article will continue to increase the demand for trucks during the normal lull.

The availability of the vaccine will re-open all areas of the economy and this to will drive freight. The economists at ACT Research expect a very strong 3.9% U.S. GDP growth in 2021 as the economy recovers.      

No, there won't be the normal winter doldrums this year. It will be all-hands-on-deck as the greater economy, industrial, manufacturing, and housing businesses all fire back up and that pent-up demand and idle cap-ex are exercised.

(2) Port congestion on the west coast will inflate rates all the way to produce season

Moving freight in, out, and around California will be expensive in 2021.  One of the most talked-about points in shipping the last 6 months has been the congestion at the west coast ports.

It’s been called shipageddon as the ships are 100% full, the containers are 100% full and the whole cycle is absolutely at full pelt.  Ports are seeing the highest volume in over 10 years. The Port at Long Beach claims it’s the busiest year in its 114-year history.

Now that all this freight is on the west coast in warehouses, it will have to be moved to the correct distribution centers and that will happen in Q1.  

If you move freight on the west coast you know how expensive its been for the last 3 months. Look for those rates to stay high through March.

(3) The reefer and cold-chain business will be inflated due to the vaccination distribution

Three cheers… the vaccine is here!  

Now it will need to be distributed to hundreds of millions of people across North America.  This represents the most important civilian logistics project in North America and trucks will be at the center of it. 

And while distribution of the 300 million doses normally wouldn’t phase the freight market, this year isn’t like any other. Capacity is tight everywhere. The distribution of the vaccine will extend beyond the small group in the pharma supply chain and will likely impact the whole cold chain business.  

And it’s worth noting that while the tight capacity may not be a direct concern for vaccine distribution efforts, it should be for shippers that move freight on temperature-controlled equipment. 

The vaccine will be largely moved on smaller equipment than 53-foot reefer trailers, but that also means fewer alternatives will be available for shippers who rely on that distribution channel. And that will press the overall reefer capacity.

Of course, the backdrop here is that this is all happening at a point in time where reefer capacity is absolutely tapped out and reefer rates are near all-time highs

The vaccine distribution effort will last throughout the year. And while no one can completely predict the effect, look for reefer rates to stay high through the first half of 2021 as the spillover supplies and equipment redistribution touch the broader market.

(4) The driver’s shortage will be a major talking point again

According to the FMCSA, 2020 saw the largest drop in drivers ever. The number of drivers fell off by more than 150,000 from July to October.  Per the FMCSA calculations, this represented a very deep cut of 4.4% in the overall driver pool. 

The Bureau of Labor Statistics is also reporting an 8 year low in the driver count. Their research notes the driver count falling from its highest level ever in February 2020, to the lowest since 2012 by September.


 Note: Data from the Bureau of Labor Statistics shows the OTR truckload driver count is at an eight-year low.


Inside all these numbers the storyline shows that some drivers left due to the economic downturn affecting small carriers and their workforce, some left to wage and working conditions, and 46,000 were taken off the road due to Drug & Alcohol Clearinghouse violations.  

The Drug & Alcohol Clearinghouse number is one to watch as only 4,400 have completed their return-to-duty requirements. Meaning, more than 41,000 drivers won't be returning anytime soon.

In the last few months, there’s been a major trend towards increasing driver pay to try to lure workers back to the industry, but this is really a Hail Mary pass in an already desperate situation.

The final talking point here is that new drivers can’t enter the workforce and get their CDL due to many driver schools being closed for COVID.

The driver’s shortage will be real in Q1 and it will pinch already tight capacity and inflate rates. 

(5) Contract rates will increase but spot rates will largely stay flat

Rates have climbed steadily since July. And with the expectation of high volume and tight capacity through March, this means rates will stay inflated.

The big question is how high will they go?  

Without getting too deep into multiple analyst analyses, the prevailing wisdom says contract rates will increase in the 6% – 10% range and spot rates will largely stay flat.

Note: DATs YOY TL Market Inflation confirms expected linehaul increases in the 6% – 10% range 

If you’re looking for some deeper analysis on rate increases for 2021, we recommend both the FreightWaves 2021 Outlook and the DAT Market Update  

Since August we've been operating in a market where dynamics have pushed spot rates above contract rates. The recent capacity pinch has removed the near year-and-a-half discount found on the spot market.

Q1 bid cycles will be important to shippers trying to gain the most cost efficiency with their freight.

(6) Deployment of operating technology will continue to thrive

The last 5 years have been a technology renaissance for the freight business. Venture and Private Equity investments have dumped more than $60 billion dollars into more than 2,000 freight tech companies.

And the results have spawned a cornucopia of tools aimed at delivering a seamless logistics experience for everyone involved in the supply chain.

Given the economic conditions, 2020 didn’t notch huge investments on the technology development side, but it did push the agenda on the operations side. 

Shippers, carriers, and brokers alike were pressed to build remote workforces overnight and deploy technology that will facilitate deeper visibility into their organization’s operations.

As we roll through Q1 and beyond there will continue to be a major push for operating technology. The focus will be on integrations of existing technology and deployment of holistic visibility solutions.

(7) The RFP cycle will be permanently altered

Q1 is typically the time when shippers would push an annual RFP to award annual contracts.  

Of course, the annual RFP has been a staple of the industry for 25 years. The key purpose has always been to weed out poor performers, award lanes to trusted incumbents, reduce shipping costs and above all, improve the entire logistics operations.

But over the last year, we’ve seen the procurement process complete replaced… and for good reason.

Market volatility, better access to real time pricing data, and new tools to evaluate carrier performance are driving the change to dynamic bid cycles. 

That’s right those annual RFPs are out and quarterly RFPs are in.  Shippers are now packaging their bids into shorter “dynamic” cycles to take advantage of the best market conditions.

This change will become permanent in 2021. RIP the annual RFP.


So, there you have it. Newton's Law will prevail over the Q1 freight market. The current market dynamics of high volume, tight capacity and inflationary rates will remain in motion…

The 7 things you need to know about the Q1 freight market are already in play:

  1. There won’t be a normal winter lull this year
  2. Port congestion on the west coast will inflate rates all the way to produce season
  3. The reefer and cold-chain business will be inflated due to the vaccination distribution
  4. The driver’s shortage will be a major talking point again
  5. Contract rates will increase but spot rates will largely stay flat
  6. Deployment of operating technology will continue to thrive
  7. The RFP cycle will be permanently altered

Shippers take heed to follow these 7 disruptors closely and prepare for capacity to tighten, rates to go up… and for the era of un-comfortability to rein.

What’s a shipper to do?

There are 3 clear things shippers should do to prepare for the 2021 freight market.

(1) Push your Q1 RFP

The first half of 2021 is expected to be volatile. But most the analysis shows the market softening in the second half. And there are certainly wild cards at play. The economy and pandemic are major x-factors.

This is a year where better short-term planning will produce a stronger result.

If you need help with your RFP… check out our guide: The Ultimate RFP Checklist for Shippers. It’s the blueprint for building a world-class RFP and will help you craft your dynamic bid process for 2021.

(2) Implement performance-based carrier selection and routing

Rates will be high for shippers. Capacity will also be tight. The last thing you can afford is high rates and poor performance.

Have your traffic team settle on a list of KPIs that measure vendor performance. As your dynamic bidding process plays out, select and rotate carriers based on KPI performance.

If you’re looking for a manual to benchmark carrier performance, check out The Complete KPI Worksheet for Shippers.

It’s the gold standard for carrier scorecards and will help you measure performance across your network. 

(3) Prepare for dynamic budgeting

Get ready for another year of wild swings. This inflationary period will stay with us for at least the first quarter, then the market will be driven by greater economic, political and health factors that have yet to be written.

Costs will do one of 3 things - go up, go down, or stay flat (an old - but still good - market joke). Jokes aside, this isn't the type of year where a budget drawn up in December 2020 is likely to hold water through December 2021.

There's a move towards quarterly budgeting as well. Budget based on what you see 4 months out.

The worst thing you can do is close your eyes and wish it away… a volatile market will persist through 2021.

Instead of trying to make a long-term budget work for you, shorten the scope… it will take any undue pressure off your staff as market conditions change. 

So, get ahead of the year… 

Build a stronger lane waterfall with a Q1 RFP…  measure your vendors’ efficacy and rotate based on performance… and move to a dynamic budgeting cycle.

You’ll be glad you did.

Need help moving freight across North America? FLS can help. Our network of 54,000 carriers and 400,000 trucks is a great asset to any shipper… and our service levels are impeccable. Give us a try… Get a quote today!