2020 Freight Industry Fate Still Dominated by COVID-19 Pandemic
As COVID-19 cases surge again in the U.S., states like California have re-implemented restrictions, prompting freight economists and consulting agencies to reassess industry prospects. Rajeev Dhawan, director of the forecasting center at Georgia State University, stated that 2020 freight data "will not look good by any measure"; Avery Vise, vice president at FTR, expects loadings to decline by 5.7% this year, with capacity utilization not recovering to around 88% until May 2021. Industry insiders point out that the pandemic remains the key variable determining the freight industry's fate throughout the year.
News from California is worrying: On Monday, Governor Gavin Newsom said he wouldwithdraw the comprehensive reopening plan. As COVID-19 cases surge again in the U.S., especially in the Southwest and South, he ordered restaurants, bars, and movie theaters to suspend indoor operations.
Freight economists and consultants are reassessing data to determine where the industry stands in the economic recovery and what impact a new wave of large-scale shutdowns and layoffs would have. Although the COVID-19 fatality rate has declined compared to U.S. data from April and May, new cases could still bring waves of problems to the country—including more deaths. Rising deaths and strained hospital capacity could trigger the sharp shutdowns seen in spring.
Meanwhile, many economists had already said freight volumes would decline in 2020 and expected poor year-end financial results. It is now increasingly clear: the coronavirus still dominates the trajectory of freight data for the rest of the year. Even if freight shows signs of sustained recovery from pandemic-related shutdowns, 2020 could still see significant net losses.
Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University's College of Business, told Transport Dive: "2020 will not look good by any measure."
Has the worst passed for the trucking industry?
Dhawan noted that trucking is highly dependent on port throughput—especially the ports of Los Angeles and Long Beach, the two largest in the U.S.—but other parts of the world are also fighting the pandemic, and consumer demand for many goods remains weak.
However, he said the transportation sector found an "artificial bottom" in May. Multiple economic sectors saw artificial recoveries because they benefited from government spending and Federal Reserve actions. Now, as we enter July with no vaccine or reliable treatment, people realize 2021 could also be affected.
Avery Vise, vice president of trucking at FTR, said during a Thursday webinar on key freight issues: "We expect freight volumes won't return to pre-crisis levels until the second half of 2021."
Vise said the worst may be over, but 2020's final data will be substantially damaged. "Compared to 2019, it will definitely be negative," Vise said. "Our latest forecast is a 5.7% decline in loadings this year."
As for "effective utilization"—the proportion of trucks running with loads—Vise expects it to rise later next year. Utilization was about 83% in May, compared to 98% in May 2018 during the freight boom. Vise's chart shows he and FTR expect effective utilization to rise to about 88% by May 2021.
Vise said he has seen signs of gradual stabilization in trucking and the overall freight economy. Some data suggest the national freight economy is recovering. But he cautioned that the rebound data comes from a low base.
"If we look at the current situation, we can't ignore that real-time activity indicators are quite strong," Vise told webinar attendees. "Two weeks ago, total freight availability in the Truckstop.com system was near a two-year high. That's also true for dry van trailers. Reefer and flatbed spot freight volumes aren't as strong, but they're among the best levels of the year and are all above last year's levels and the five-year average."
"If we look at the current situation, we can't ignore that real-time activity indicators are quite strong."
Avery Vise
Vice president of trucking, FTR
But like many economists, he cautioned attendees not to have overly high expectations. "A few weeks of strong growth isn't enough to declare we're about to see another period like, say, the third quarter of 2017," Vise said.
Lessons from the near and distant past
James Burg operates a fleet of 90 trucks in Warren, Michigan. James Burg Trucking primarily transports steel for manufacturers. Burg said his company has been hit, but he learned and benefited from the 2007-2009 Great Recession in the U.S.
"We used the Great Recession as a benchmark," Burg said of recession planning. "We made sure we had enough resources."
Burg told Transport Dive that the shutdown had a peculiar effect on steel demand: auto demand fell, but demand for household items like washing machines rose because they are used more frequently than usual and may need replacement.
Burg noted the industry has undergone a Darwinian selection. If fleets are still operating after the spring shutdowns, they are likely financially and otherwise prepared for new regional shutdowns, he said.
Cases versus deaths
The health of the transportation industry depends on seemingly esoteric debates in epidemiology. According to Eric Starks, CEO of FTR, there is debate within FTR, as in the nation, over which factor drives the economy more: new COVID-19 infections or the resulting deaths. Starks also spoke on the webinar.
As deaths decline, some government officials, including President Donald Trump, say the worst may be over and it's time to open schools and most, if not all, businesses.
But according toJohns Hopkins Universitydata, the U.S. reports about 67,000 cases per day (based on a five-day average), compared to a spring peak of 36,300 per day. The surge in positive cases worries many about the economy.
"We want to see (death) numbers as low as possible," Starks said, "but I don't think it's the factor driving the economy. What drives the economy more is the number of new cases."
Starks said the proportion of positive tests among all tests was expected to remain stable, but it hasn't. In states like Florida, the positive test rate exceeds 10%, compared to single digits earlier in spring.
"What drives the economy more is the number of new cases."
Eric Starks
CEO and chairman, FTR
Starks told webinar attendees that more testing will find more cases, but new cases also bring the same issues as in spring: do hospitals need to be protected from overload? Do we need to shut down again?
Another round of shutdowns could pose problems for freight movement. Starks said new economic disruptions could be diverse, impacting the national economy. California has many manufacturers and food production. Texas has chemical manufacturers and fuel production. "That's a large part of GDP," Starks said.
Some trucking executives dislike the idea of another round of shutdowns because freight demand from schools, restaurants, and bars would decrease.
"I can sustain losses for a long time, but I can't shut down,"Royal Jones, CEO of Mesilla Valley Transportation,told Transport Dive in June, "April and May cost us dearly."
Not out of the woods yet
What changed the 2020 outlook is a new understanding of the coronavirus, including its high contagiousness.
"What we've learned is that opening without proper precautions is problematic, which is why we need treatments and a vaccine to open properly," Dhawan said. "We will open, and we will continue to work."
But Dhawan said things won't return to normal by January 1, 2021. Ultimately, the economy and trucking remain in the hands of the coronavirus. Dhawan compared the virus to a forest fire that can't be put out.
"2020 depends on how the virus evolves. The timeline of recovery—how strong, how balanced or unbalanced—will depend on the virus's development over the next six months."
Rajeev Dhawan
Director of the Economic Forecasting Center at the College of Business at Georgia State University
"2020 depends on how the virus evolves," Dhawan said. "You can't control it... The timeline of recovery—how strong, how balanced or unbalanced—will depend on the virus's development over the next six months."
Dhawan said businesses always face risk and uncertainty. But this time, executives can't predict the endpoint because the forest fire is still burning through its fuel, he said.
Burg said the current recession has "reset" the economic clock, meaning once things return to normal, the economy could enter a long-term growth phase, Burg said with some optimism. Burg said he hopes the worst of the shutdowns is over.
"What I would say is: this shutdown is worse than the Great Recession," Burg said.