COVID-19 Pandemic Casts Shadow over Trucking Industry's 2020 Outlook

2020 was originally expected to be a better year for the trucking industry than 2019, with some of 2019's financial woes hopefully becoming a thing of the past.

The industry had hoped Congress would advance an infrastructure bill to repair roads and bridges. The decline in trucking capacity in February meant fleets could expect higher rates. Fleets also hoped to make progress in 2020 on industry-specific issues such as the driver shortage.

The overall economy seemed solid, diesel prices were low, e-commerce continued to grow, and the Dow Jones Industrial Average briefly surpassed 29,000 points. Despite the slowdown in U.S. manufacturing,many economists did not foresee a recession in 2020。

However, by late February, the situation became increasingly clear: the novel coronavirus and the disease it causes, COVID-19, had not subsided in Asia but had spread globally. What initially seemed like a distant medical issue was no longer just a logistical entanglement—it forced some transportation companies to cancel business arrangements at ports, terminals, and conferences.

The latest evidence came on March 3. FTR, a research firm based in Indiana, reported thatpreliminary North American Class 8 truck orders in February unexpectedly fell 20% from January, totaling 14,100 units. FTR stated this was the lowest level of February order activity since 2010, also down 18% year-over-year.

"This is not good news for the trucking industry or the overall economy," said Don Ake, vice president of commercial vehicles at FTR, in a press release. "It appears fleets have decided to postpone some orders until the health crisis passes. Since most carriers have enough existing capacity to handle current freight volumes, fleets are under no pressure to purchase more trucks."

It is still unclear when COVID-19 will subside, allowing most or all factories in China to resume production and ships to sail to the ports of Los Angeles and Long Beach in California. The pandemic and its effects have caused such deep market panic that some analysts believe they cannot currently make forecasts for the remainder of 2020.

"The pandemic has completely muddied the outlook for 2020," Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University, told Transport Dive. "Remember, the event is still ongoing, and if the event hasn't ended, you can't assess its economic impact."

DhawancomparedCOVID-19to a hurricane lingering offshore, destined to make landfall. He said that as long as the hurricane stays at sea, it causes no damage, so its economic losses cannot be assessed.

To other observers, this "virus hurricane" is approaching land, or dissipating. Whether damage occurs, or does not occur, will soon be revealed.

"I think we're at the tipping point of understanding whether it's really going to affect us," John Q. Anderson, operating partner at Greenbriar Equity Group, told Transport Dive.

Greenbriar Equity holds stakes in LaserShip (a non-asset-based parcel delivery company), BDP International (a logistics company managing chemical, industrial, and consumer goods freight), and SEKO Logistics (a global supply chain company).

Anderson said that if the spread of the novel coronavirus stabilizes or stops soon, the cumulative impact on corporate earnings will be limited. But if governments close some ports, factories, and airports, economic consequences will emerge.

"Then you will materially affect the transportation and logistics outlook for the year," Anderson said. "I mean overall volumes, revenue, and profits will decline by at least 5% to 10%, or even more."

This is a far cry from Anderson's initial view of 2020.

"I was optimistic about meeting or exceeding 2019 levels," Anderson said.

But no one can be certain, even those at the heart of trucking advocacy. Bob Costello, chief economist at the American Trucking Associations, said that if he knew how the virus spread would unfold, he could tell people what might happen for the rest of 2020. Mass quarantines or short-term spread would lead Costello to different conclusions—but either way,there will be a conclusion。

"Right now, I don't know what might happen," Costello told Transport Dive.

The virus is often the first issue freight analysts mention.

"I'm a bit caught up in the current situation with the novel coronavirus," Randal Mullett, a former XPO executive and now head of Mullett Strategies in Virginia, told Transport Dive. "Is this a short-term event... affecting consumer sentiment, supply chains, and the demand curve? It's somewhat unknown. I currently view it as an isolated event, although it is serious."

Still, Mullett remains optimistic—provided the virus spread slows or is contained.

"I do believe we will recover from this in the coming months," Mullett told Transport Dive. "However, these months could be tough for the trucking industry. Transportation stocks are currently taking a heavy hit. There's no reason to believe they will bounce back soon... I remain generally positive on the current situation."

One reason? Mullett said capacity has already declined, meaning fleets will get higher rates. Another analyst also agreed rates will move higher, even if the tightening of capacity is not directly related to rising consumer demand.

Chris Pickett, chief strategy officer at Coyote Logistics, a UPS subsidiary, said in an email to Transport Dive that at the start of 2020, reduced truckload capacity meant shippers began to have fewer options. Spot rates—the weaker "brother" of contract rates—began to rise.

Coyote Logistics regularly publishestruckload market forecasts。

Problems that emerged in 2019—bankruptcies, shutdowns, union strikes,lower rates, rising insurance costs, increased regulatory pressure, and driver wage inflation—had a Darwinian effect, weeding out weaker fleets. Pickett said trucking companies are now able to push spot rates higher, but the range of increases will depend on economic performance in 2020.

"If the economy weakens significantly from here, whether triggered by COVID-19 or not, we will see lower rate peaks and return to (rate) deflation as early as the first half of 2021, but the inflationary cycle phasewill last until the end of 2020"。”

Before the fog of COVID-19 arrived, driver shortages and e-commerce were the hot topics of 2020.

In July 2019, ATA reported that as of the end of 2018, the industry needed an additional 60,800 drivers to meet freight demand.

Costello told Transport Dive that ATA's 2019 driver shortage data would be released in a few months. But he said the problems facing manufacturing and trucking in 2019 helped alleviate the shortage—with less demand for trucking, there was less demand for drivers.

"The situation didn't worsen because we found a solution," Costello said. "The situation didn't worsen because the industry slowed down. The root causes of the driver shortage have not improved."

According to the American Transportation Research Institute, an ATA affiliate, the driver shortage is theindustry's top concern. In October, at ATA'sManagement Conference & Exhibition in San Diego,Costello said the driver gap could reach as high as 105,000 by 2023.

ATA still hopes President Donald Trump and Congress will pass an increase in the federal fuel tax. The federal fuel tax is 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel. These rates have not been raised since 1993, and ATA, AAA, and the U.S. Chamber of Commerce all say raising the fuel tax would help repair the nation's infrastructure and better fund the Highway Trust Fund, which is mostly funded by taxes on gasoline, diesel, and heavy tractor sales.

A longtime tax lobbyist said a fuel tax increase would not be included in a 2020 infrastructure bill.

"The House says no, the Senate says no, it's not going to happen," said Grover Norquist, president of Americans for Tax Reform, the taxpayer advocacy group he founded in Washington, D.C., in 1985.

Public transit receives 28% of Highway Trust Fund money, and Norquist wants to end this transfer to meet highway needs.

"The resources needed to fix the roads are right in front of you," Norquist said. "Why pour water into a bucket with a hole in it?"

Costello said raising the fuel tax in 2020 would not harm the industry. He said potholes and other road problems damage trucks, so fleets might save money if infrastructure is repaired.

"It's one of the best government expenditures you can get," Costello said. "It's very stimulating. It creates jobs. There are secondary effects when you build new infrastructure and repair existing infrastructure."

But infrastructure financing could pose problems for the trucking industry. Some federal officials are considering a trucking-specific tax increase—the "VMT," or vehicle miles traveled tax.

Not everyone in the industry favors a new fuel tax. Mullett said he believes passing a fuel tax increase or VMT in 2020 could create economic problems for the trucking industry.

"Either one of these would put pressure on our industry, especially if demand doesn't recover," Mullett said.