Economic Recovery and the Future of the Freight Transportation Industry – Part 2

In my previous blog (https://www.dantranscon.com/index.php/blog/entry/economic-recovery-and-the-future-of-the-freight-transportation-industry-part-1), I suggested that the economic recovery during the balance of this year will likely have a number of peaks and valleys that reflect the spread of Covid-19. In this blog I will explore some of Covid-19’s impacts on freight transportation.

The latest economic data “most closely resembles a horror movie with Q1 GDP posting the worst numbers since the global financial crisis, nearly a quarter of workers now unemployed, and durable goods showing the worst two-month streak since data collection began,” stated Brett F. Ewing, Chief Market Strategist, First Franklin Financial Services.  The job market halted its pandemic-induced collapse in May as employers brought back millions of workers and the unemployment rate unexpectedly declined. Tens of millions of American workers are still out of work, and the unemployment rate, which fell to 13.3 percent from 14.7 percent in April, remains worse than in any previous postwar recession. All the same, economists warn that it will take far longer for the economy to climb out of the hole than it did to fall into it.

The gains in May indicated that the Canada Revenue Agency, the U.S. Congress and the Federal Reserve had at least partly succeeded in limiting permanent economic damage by providing trillions of dollars in assistance to households and businesses. But that aid is now in jeopardy in the U.S., and economists warned that there was no guarantee the job market would continue to improve without it.

Even as the economy shows signs of revival, the United States is confirming more than 20,000 new coronavirus cases and 1000 deaths a day, with counts rising in at least 21 states. The protests over the past three weeks have brought thousands of people to the streets across North America, most close to one another. While many protestors are wearing masks, the lack of physical distancing will likely produce increased virus case counts in many locations.

At the same time, employment in nearly every sector remains far below where it was before the crisis. Many economists expect an initial resurgence in at least some kinds of business. But it isn’t clear how strong that upturn will be, or what will come after. So, what does this all mean to the freight transportation industry?

Business Volumes will remain Soft as Consumer Behavior is Changing

The effects of the business closures and social distancing related to COVID 19 were clearly visible in the details, which were sobering—but not surprising. As the pandemic took hold in North America, business initially picked up as manufacturers and truckers struggled to restock stores with toilet paper, hand sanitizer, and groceries. Companies like Amazon have been hiring thousands of new employees to keep up with demand.

For other businesses, volumes dried up almost overnight. Most categories of sales plunged at unprecedented rates. Sales at clothing and accessories stores essentially stopped short, falling 89% relative to April a year before. Sales at electronics and appliance stores were down 65% versus last year, furniture and home furnishings sellers saw sales plunge 67%, and restaurants and bars did 49% less business than in April 2019. Even sales at “essential” health and personal care stores were down 10%. Modest positive offsets at food and beverage stores, which gained 12% relative to a year ago, paled in comparison to these calamitous declines.

Some truckers parked trucks and laid off workers; others have been scrambling to hire more drivers to meet demand. Tom Balzer, the president of the Ohio Trucking Association represents about 1,000 Ohio trucking companies. During a survey report in April, Balzer discovered some of the companies have lost 60 to 65% of their business and many of them have laid off workers during the pandemic. "53.02% had to reduce their number of employees and 38.92% are anticipating even further layoffs," Balzer said.

The Canadian Trucking Alliance (CTA), which collected responses from 100 carrier members, and performs a monthly survey of Today’s Trucking readers, representing responses in the last week from 246 trucking industry representatives.

They surveyed CTA fleets, which collectively represent 60,000 Canadian workers, reported an average 27% drop in revenue, and a 300% increase in empty miles – with a drop in backhauls sacrificing margins and the ability to cover full costs. Sixty-three percent of respondents say customers have asked for payment deferrals or simply not paid for trucking services. More than half (52.4%) of those surveyed by Today’s Trucking say their trucking businesses have laid off staff and/or downsized in the wake of Covid-19. With the expectation of a bumpy recovery, consumer demand will be slow to return to pre-Covid levels.

Even though they can’t go out, today’s consumers are going online. In April, retail sales at non-store (mostly online) retailers jumped 8.4%, even as total retail spending fell. Sales via this channel were up 22% over the last 12 months.

“With how much people have had to rely on home delivery and online shopping over the past few months, we believe this will be the new normal across the industry,” Webb Estes, vice president of process improvement, told Transport Topics. “It’s now many individuals’ and companies’ preferred way to shop and do business.” “We’ve already made some changes like not requiring delivery appointments and signatures,” Estes said. “For a number of reasons, we’re finding customers love this new normal. They don’t have to wait at home for up to four hours, and we keep them informed via text, phone calls and pictures.”

Freight Rates will Rebound as Demand Increases

Spot market rates dropped so much that some loads would cost more in operating costs to haul than truckers would be paid. “Trucking companies are still reeling from drastic declines in rates, as large swaths of the economy remain closed in response to COVID-19,” said DAT Solutions in its report on spot rates for the week of April 20-26. “That’s hurt demand for truckload shipments, and prices continue to fall on most major lanes.”

Many contract carriers saw the number of loads tendered from their committed shippers drop significantly, forcing some into the spot market, especially to fill empty backhauls. A willingness to accept low rates to get the truck back to where they could pick up a committed contract load put more downward pressure on spot rates. Rates will edge upward as demand increases.

Trucking Companies implement Employee Protection Initiatives

In an HDT survey conducted March 27 through April 11, the most common steps companies had taken to protect the health of their employees were:

• Communication and training about best practices, 67%

• Sanitized surfaces throughout facilities, 65%

• Provided drivers tools to reduce chances of exposure, such as gloves, masks, and hand sanitizer, 57%

• Added hand sanitizer stations in facilities, 56%

• Sanitized all surfaces in trucks, 52%

• Allowed or required office staff to work from home, 47%

• Closed some or all facilities, 16%.

Some other tactics fleets mentioned included closing facilities to the public, no slip-seating at this time, daily screening questionnaires, and using technology for communication to minimize in-person contacts.

The New Normal for Drivers

Many drivers are facing safety, job security and economic concerns during the coronavirus crisis. In addition, many face long waits at shippers and receivers, as well as temperature checks, health questionnaires, mask requirements, and being banned from using restrooms.

With the shuttering of sit-down restaurants, long-haul drivers are faced with few options other than prepackaged meals and some fast-food locations that offered curbside pickup. Some drivers are turning to ordering food delivered to their trucks through apps such as DoorDash. Some franchise restaurants with truck-parking access are offering curbside options for truckers who cannot go through drive-throughs.

Trucking Capacity

Since a significant amount of truck capacity has been removed from the market, there is a concern that as freight volumes recover, shippers will again find a shortage of trucks. While this is a distinct possibility, it is equally likely that with a slow and jagged recovery, capacity will be able to keep pace with demand.

Trucking Casualties and Industry Consolidation

Comcar Industries, which owns five transportation subsidiaries with 4,000 trucks, filed for bankruptcy in early May. While many fleets have felt the economic pain caused by Covid-19, they have been able to reduce staff and park equipment to survive.

In recent weeks there have been rumblings that YRCW, the large LTL carrier is in trouble. In a press release, the Overland Park, Kansas-based carrier reported an 18.6% year-over-year tonnage-per-day decline through the first two months of the quarter with revenue per hundredweight, or yield, declining 6.3%.

The carrier reported a 22.6% year-over-year decline in April tonnage with yield moving 5.8% lower. May tonnage was down 14.5% with a 6.7% yield decline. YRC’s results imply revenue-per-day declines in the high-20% range during April and low-20% range during May. This is worse than the declines reported by its peers, ArcBest Corp. (NASDAQ: ARCB) and Old Dominion Freight Line (NASDAQ: ODFL), which saw year-over-year revenue declines around 20% in April and in the mid- to high teens in May.

In a June 10, Transport Topics article, Gulf Intermodal Services President Will Connell advised that he believes there is a possibility that once the pandemic and slowdown pass, the trucking industry will see more consolidation. “Not everyone is going to be able to weather this economic downturn as successfully as we’d hope they can,” he said. “I think you’ll see people determine that they need to consolidate to strengthen their resources.” Connell added that customers likely will be working more with nationwide carriers to ensure they have continuity in their supply chain.

A Vaccine for Covid-19 is Critical to a Full Economic Rebound

It was very encouraging to listen to a McGill University webinar yesterday (https://www.youtube.com/watch?v=Wj5uGs-Esbw&feature=youtu.be ) from two individuals who are knowledgeable in vaccines. With over 120 companies working on a vaccine, they are optimistic that more than one will be found. This is the key to reigniting the North American economies and moving the trucking industry back to full employment.

To stay up to date on Best Practices in Freight Management, follow me on Twitter @DanGoodwill, join the Freight Management Best Practices group on LinkedIn and subscribe to Dan’s Transportation Newspaper (http://paper.li/DanGoodwill/1342211466).