Freight's fate in 2020 still dominated by COVID-19 pandemic
The re-tightening of epidemic prevention measures in places such as California has cast a shadow over the freight industry's recovery prospects. Economists and industry analysts generally believe that freight data for 2020 will record a net loss, with freight volumes possibly declining by 5.7%, and a full recovery may not occur until the second half of 2021.
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 United States, especially in the Southwest and South, he ordered restaurants, bars, and movie theaters to suspend indoor operations.
Freight economists and consultants are re-examining data to determine where the industry stands in the economic recovery and what impact a new wave of large-scale shutdowns and layoffs might have. Although the COVID-19 death rate has declined compared with 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 the spring.
This news comes as many economists had already predicted a decline in freight volumes for 2020 and expected poor year-end financial results. It is now increasingly clear: COVID-19 still dominates freight data trends for the rest of the year. Even if freight volumes continue to recover from pandemic-related shutdowns, 2020 is likely to see significant net losses.
“By any measure, 2020 will not look good,” said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University's College of Business, in an interview with Transport Dive.
Has the worst passed for the trucking industry?
Dhawan noted that trucking is highly dependent on port throughput—especially the Port of Los Angeles and the Port of Long Beach, the two largest in the nation—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. Several 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 yet available, people realize that 2021 could also be affected.
“We expect freight volumes won't return to pre-crisis levels until the second half of 2021,” said Avery Vise, vice president of trucking at FTR, during a webinar on key freight issues Thursday.
Vise said the worst may be over, but final data for 2020 will be substantially damaged. “Compared with 2019, it will certainly be negative,” Vise said. “Our latest forecast is a 5.7% decline in freight volumes this year.”
As for “effective utilization”—the proportion of trucks where drivers are hauling freight—Vise expects it to rise later next year. Utilization was about 83% in May, compared with 98% in May 2018 during the freight boom. Vise's chart shows that 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 these rebound figures come from a low base.
“If you 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 hit a nearly two-year high. That was also true for dry van. Reefer and flatbed spot freight volumes are not as strong, but they are among the best levels of the year and are all above last year's levels and the five-year average.”
“If you 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 also cautioned attendees not to have overly high expectations.
“A few weeks of strong growth is not enough to declare that we will see another situation like the third quarter of 2017,” Vise said.
Lessons from the near and distant past
James Burg operates a 90-truck fleet in Warren, Michigan. James Burg Trucking primarily hauls steel for manufacturers. Burg said his company has been hit, but he has learned lessons from the United States' last economic disaster—the Great Recession of 2007 to 2009.
“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: less demand from automobiles, but more demand for replacements of household items such as washing machines, which are being used more frequently than normal.
Burg noted that the industry has undergone a Darwinian selection process. If fleets were still operating after the spring shutdown, they are likely financially and otherwise prepared for another round of regional shutdowns, he said.
The debate over cases and deaths
The health of the transportation industry depends on seemingly esoteric debates in the epidemiological community. According to Eric Starks, CEO of FTR, within FTR, as in the country as a whole, there is debate over which factor has a greater impact on the economy: new COVID-19 infections or the resulting deaths. Starks also spoke at the webinar.
As deaths decline, some government officials, including President Donald Trump, have said the worst may be over and it is time to open schools and nearly all businesses.
But according toJohns Hopkins Universitydata, the United States is currently reporting about 67,000 cases per day (based on a five-day average), compared with a spring peak of 36,300 cases per day. The surge in positive cases has many people worried about the economy.
“We want to see deaths as low as possible,” Starks said. “But I don't think that's what drives the economy. What drives the economy more is the number of new cases.”
Starks said the percentage of positive tests out of all tests was expected to remain stable, but that has not been the case. States like Florida have positive test rates above 10%, whereas earlier in the spring they were in single digits.
“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 raise the same questions as in the spring: Do we need to protect hospitals from being overwhelmed? 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 and thus have a major impact on the national economy. California has many manufacturers and food production. Texas has chemical manufacturers and fuel production. “That accounts for a large portion of GDP,” Starks said.
Some trucking executives dread 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 Transportationsaid in a June interview with Transport Dive. “April and May cost us dearly.”
Not out of the woods yet
What changed the outlook for 2020 is newly observed characteristics of the novel coronavirus, including its high transmissibility.
“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 will not return to normal on January 1, 2021. Ultimately, the economy and the trucking industry remain in the hands of the coronavirus. Dhawan compared the virus to a forest fire that cannot be extinguished.
“2020 depends on how the virus evolves. The timeline of recovery—how strong, how balanced, how unbalanced—will depend on how this virus develops 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, how unbalanced—will depend on how this virus develops over the next six months.”
Dhawan said businesses always face risk and uncertainty. But this time, executives cannot 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 that once everything returns to normal, the economy could enter a long-term growth phase, Burg said with some optimism. Burg said he hopes the worst of the shutdown is over.
“What I will say is this: This shutdown is worse than the Great Recession,” Burg said.