Fearless supply chain predictions: Here’s what will happen in 2022

Create at: 08/01/2022

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FreightWaves writers look ahead to what the future holds for various sectors of the freight industry.

Goodbye, 2021. Hello, 2022. What do you have in store for us? More supply chain issues? More port congestion? More driver issues? More topsy-turvy developments?

Probably a little bit of everything, according to FreightWaves writers. We asked our people on the front lines to look into the 2022 crystal ball and offer up predictions on their respective beats. It promises to again be a newsworthy year in the freight industry, which took center stage on many of the nightly newscasts in 2021.

TRUCKS by Alan Adler

Electric trucks will become a bigger part of manufacturing in 2022, but the semiconductor shortage that has hampered automotive and commercial vehicle production for months will remain. For how long is the question.

Autonomous trucks will stay top of mind as the first on-highway driverless pilots are examined and replicated and increased high-definition mapping expands the territory autonomous trucks can cover with safety drivers on board.

DRIVERS by John Kingston

The biggest development in the issue of worker classification in 2022 may get pushed to 2023. If it doesn’t, it will have enormous ramifications.

What the ever-changing legal landscape for worker classification is waiting on is a resolution to the question of whether California’s AB5 independent contractor law can be applied to trucking. How AB5 would affect trucking in the Golden State is the subject of much debate, but the mere fact that some observers think it would just about kill the IC model in the state indicates its importance.

For two years now, an injunction handed down at the start of 2020 has blocked its implementation because a lower federal court judge concluded AB5 conflicted with a 1990s federal law known as the Federal Aviation Administration Authorization Act. That lower court ruling was reversed by an appellate court in April but the injunction stayed in place while the California Trucking Association, which brought the original lawsuit, pursued an appeal that reached the U.S. Supreme Court. SCOTUS then asked the U.S. solicitor general to weigh in.

There’s no deadline on when the solicitor general needs to respond to the court. And there’s no deadline on when SCOTUS needs to hand down its rule. One scenario has the ruling not coming until after the court session begins in October, meaning resolution may wait for another year.

If the appellate court decision is overturned, and AB5’s definition of independent contractors becomes law for the trucking sector, the changes in business models in the state could be sweeping. Exactly what companies will do remains uncertain. But the status quo could not hold.

Two other significant developments regarding the status of independent contractors — like truck owner-operators — are on the horizon for 2022.

One is expected to be the Biden administration’s proposal for a new federal rule defining independent contractors. A Trump administration rule implemented just before President Biden was sworn into office was withdrawn. Whatever rule is implemented, it will impact policies at the Wage and Hour Division of the Department of Labor.

Another key development on the question of independent contractor definition will appear on the ballot in Massachusetts in November. That state will vote on whether to implement its version of the California referendum, Prop 22, that sought to keep gig drivers such as those who work for Uber as independent contractors. Prop 22 in California was in direct reaction to AB5. But even in California, a state court has ruled that Prop 22 was unconstitutional, throwing that guideline into doubt as well.

FINANCE by Todd Maiden

Truckload carriers will likely see a continuation of current trends through the first half of 2022. Volumes will be up against tough comps, buthistorically low inventories remain supportive of demand, at least in the first quarter or two.

However, the strength of the consumer will be tested without the aid of government stimulus. Rates will move higher again as driver demographics and extended tractor delivery schedules remain a headwind to capacity. The early consensus call is for spot rates to cool in the second or third quarter, with contractual rates up by a high-single-digit percentage for the full year.

Rate increases are expected to more than offset cost inflation, driving modest margin improvement. The improvements appear to be built into 2022 earnings expectations, which are higher again.

How the year shakes out will ultimately depend on when the cycle starts to decline and will most likely be directly correlated with a softening in consumer spending. The end of this trucking cycle will not be tied to an influx of capacity, which has ended many cycles in the past. Many analysts are pointing to the second half for a cycle downturn, which is also the period that contains the most formidable comps to 2021.

Deal flow in the trucking space was robust in 2021 and indications point to more of the same. Carriers have been using record profits and cash generation to add drivers/equipment and new transportation offerings through M&A. Several transformative deals were inked last year and it will be interesting to see who acquires what in 2022.

REGULATIONS and LEGISLATION by John Gallagher

Part two of the biggest infrastructure story coming out of Washington in years — the signing into law of the Infrastructure Investment and Jobs Act — will begin to be told in 2022, which is whether the billions of dollars included in the law can be disbursed fast enough to help unclog current bottlenecks in the supply chain.

Also in 2022, look for the most attention from the government in years applied to the issue of driver retention, starting with the rollout of President Biden’s Action Plan. And industry players along the waterfront will be keeping close tabs on the Ocean Shipping Reform Act, which passed the House in December. If it gains traction in the Senate and ultimately signed into law, it will impose new restrictions and oversight on international ocean carriers — with potential cost implications for shippers as well.

The calendar is changing, and for parcel shippers that may be the only thing that does.

E-commerce volumes will continue to rise, and with it demand for parcel fulfillment and delivery services. Carriers will again control the pricing narrative. UPS — and to a lesser extent FedEx — won’t think twice about kicking big shippers to the curb should they fail to toe their pricing lines. Capacity will expand, but with volumes growing at a faster clip, the higher productivity levels that accompany infrastructure enhancements will not translate into price reductions for shippers.

Enterprise shippers with big volumes again won’t have many options. Regional delivery carriers are at or near maximum capacity and may be reluctant to onboard new business for fear of compromising their service reliability. Amazon.com Inc. could move the needle by launching a delivery service aimed at businesses not using its retail or fulfillment services. However, Amazon has a lot on its plate just meeting the logistics demands of its existing customers.

The U.S. Postal Service will bring a stronger parcel-delivery presence to the table in 2022. The question is whether big shippers have enough confidence in the Postal Service to rely on it heavily outside of the holiday peak.

Maybe the biggest story of the new year will be whether FedEx Ground, FedEx Corp.’s U.S. ground-delivery unit, can regain its mojo. The unit had a difficult calendar 2021 as staffing shortages led to higher costs, delivery disruptions and shrinking operating margins. FedEx said the ship will be righted during the first half of calendar 2022 as staffing levels increase. A lot of folks are holding the company to that pledge.

MARITIME by Greg Miller

COVID will remain a central variable for ocean shipping in 2022. The longer the pandemic lasts, the longer ocean supply chains will be disrupted and the longer freight rates will stay exceptionally high. The near-term risk for U.S. importers is more about goods availability than cost: If China sticks to its “zero COVID” policy and omicron spreads, Chinese exports are in danger.

Other key issues to watch: how the U.S. changes its regulation of ocean carriers and what unintended consequences emerge; how the retail inventory-to-sales ratio evolves; how geopolitical tensions play out with Russia, China and Iran; and what happens with international regulation of shipping emissions.

Will new emissions rules actually have any teeth? If so, it could push freight rates even higher.

AIR CARGO by Eric Kulisch

The growth trajectory for air cargo is likely to continue in 2022. Demand growth may dip from 9% in 2021 (compared to 2019), but it will be a seller’s market again.

The global economy is rapidly growing, inventory levels are still relatively low and international capacity for passenger airlines will not fully recover, especially with the omicron variant holding back flight schedules. Demand should be very strong leading up to Chinese New Year with a modest decline before soaring again for the fall peak season.

Freight forwarders will continue to control more capacity by entering more charter arrangements with carriers. There is a permanent threat to cargo capacity developing as airlines operate fewer frequencies with single-aisle planes. It is one reason, along with the trade growth and the surge in e-commerce, that demand for converted and new freighters will continue to boom in 2022.

For the rails, the Surface Transportation Board, which is the federal regulatory body governing rail-related economic regulations, will be looking at a number of hot-button issues in 2022. Some of these issuesare about whether big railroad companies should merge and what that merged company would look like for shippers, competing railroads, employees and the local communities served. Other issues have been brought forth by shippers asking the board to define service or data parameters.

The STB is a five-member board. The newest member is a Democrat nominee replacing a Republican. Democrats now represent three members of the board, and so it will be interesting to see if and/or how this change will influence or affect the board’s actions in 2022.

FREIGHTTECH by Grace Sharkey

In 2020, supply chain innovation brought new ways to get goods without having to risk our families’ health and safety. As life became more normal in 2021, consumers ran with those innovations, which brought better visibility into where goods come from and even enabled drones to deliver goods to doorsteps.

In 2022, new technology — including livestream shopping experiences, influencer-driven marketplaces and deeper investment in local microfulfillment centers — will completely change the way consumers interact with retailers.

MEXICO-US BORDER by Noi Mahoney

If 2021 has taught the United States-Mexico trade community anything, it’s to expect the unexpected. Global semiconductor shortages hampered the U.S.-Mexico automotive supply chain, causing delays and work stoppages in auto factories on both sides of the border all year long. Some predict Mexico’s automotive industry won’t return to pre-pandemic production levels until the end of 2023.

As the global economy continues to recover from COVID-19, more companies continue to look to move their operations from Asia to nearer shores such as Mexico for manufacturing and distribution. Global investments in Mexico’s manufacturing sector will likely continue through 2022, with more companies nearshoring operations south of the border.

Another key development in cross-border trade is the Mexican government’s new regulations for shippers, carriers and third-party logistics providers known as the carta porte. The regulations from the Mexican Tax Authority are aimed at reducing cargo theft across the country. It was set to go into effect Saturday but was recently extended to March 31. Some have criticized the new requirements, saying it will add unnecessary paperwork and more costs to cross-border shipments.

CANADA-US BORDER by Nate Tabak

The Canadian freight market — inextricably linked to $700 billion in annual cross-border trade with the U.S. — is poised for a year marked by higher pricing. As Murray Mullen, the CEO of Alberta-based trucking giant Mullen Group, told analysts in October, “Prices must rise.”

Despite tight capacity and strong volumes, particularly in consumer products, base freight rates in 2021 have moved up only marginally, according to Nulogx’s Canadian General Freight Index. So what’s going to move pricing?

Everything is getting more expensive, including labor. Meanwhile, the federal government has phased out major pandemic support programs, including a wage subsidy. The COVID-19 vaccine mandate coming in January likely will take drivers out of cross-border operations — by some projections more than 20%.

While some industry insiders think the real number will be significantly lower, the existing capacity constraints mean that even a small reduction will put upward pressure on rates.

Another driver: Canada’s ELD mandate. Once enforcement begins — currently slated for June — busy domestic lanes including Toronto-Montreal likely will get more expensive as exceeding hours of service rules becomes more difficult.

It will be exciting to see how supply chain players advance sustainability trends in 2022. The COP26 climate conference in November spurred governments and companies to take action against climate change. Which companies will lead the way? Which sustainable fuels will gain market share in each mode of transport in 2022?

Aviation, maritime, rail and trucking each have different mixes of low- and zero-carbon fuels emerging. Environmental groups will continue to stress the importance of using life cycle analyses from well to wheel to evaluate the sustainability and emissions of alternative fuels such as green hydrogen, ammonia, renewable diesel, battery-electric, renewable natural gas and methanol.

So far this season, above normal snowfall has slammed areas of the West, especially in the Sierra Nevada. However, based on the mid-December outlook from the Climate Prediction Center, precipitation is likely to return to normal levels for the January through March time period.

During the same time period, waves of supply chain delays will be possible in the Northwest and Midwest, where above normal precipitation is likely. The Midwest could be quite wet and warm at times during the spring and summer while the Northwest dries out.

Temperatures could remain largely above normal in parts of the West and Southwest through summer, leading to another potentially devastating wildfire year. Areas of the South and East may also experience many periods of unseasonable warmth, while most of the cold weather is confined to portions of the West and Northwest.

CRIMES and COURTS by Clarissa Hawes

It’s hard to predict what will happen on the crime and courts beat in 2022, but expect more trucking company failures, including drayage carriers, if the supply chain crisis continues.

The ports and terminal operators must find ways to improve efficiency and allow drayage companies to pull customers’ containers and return the empties. Drayage truckers claim their financial situations are becoming dire and it will get worse in 2022 if port congestion isn’t cleared out during the Lunar New Year in February.

Source: freightwaves.com by FreightWaves Staff