COVID-19 pandemic casts shadow over trucking industry's 2020 outlook

2020 was expected to be a better trucking year than 2019, with some of 2019's financial struggles hoped to be a thing of the past.

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

The overall economy seemed solid, diesel prices were low, e-commerce continued to grow, and the Dow Jones Industrial Average briefly broke above 29,000 points. Many economistsdid not foresee a recession in 2020, despite a slowdown in U.S. manufacturing.

However, it became clear in late February: the novel coronavirus and the disease it causes, COVID-19, had not subsided in Asia but had spread globally. What started as a distant medical issue had become more than just a logistical entanglement—it forced some transportation companies to cancel business at ports, terminals, and conferences.

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

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

There is still no clear consensus on when COVID-19 will dissipate, allowing all or most Chinese factories to resume operations and ships to sail to the ports of Los Angeles and Long Beach, California. The virus and its effects have rattled markets, and some analysts believe they cannot currently make forecasts for the rest of 2020.

"This completely muddies 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, so if the event hasn't ended, you can't assess the economic impact."

DhawancomparedCOVID-19to a hurricane parked offshore, destined to make landfall. As long as the hurricane stays over water, it causes no damage, so an economic damage assessment cannot be compiled, he said.

To other observers, this viral hurricane is approaching land or tending to dissipate. The extent of the damage—or whether there is any—will soon be revealed.

"I think we're at the tipping point of knowing 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 coronavirus stabilizes or stops soon, the cumulative impact on corporate earnings will be moderate. 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 matching or exceeding 2019," 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 if he knew how the virus spread would unfold, he could tell people what might happen for the rest of 2020. A massive quarantine or a brief spread would lead Costello to different conclusions—but either way,they would be conclusions。

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

The virus tends to be the first issue freight analysts mention.

"I'm a bit consumed by the current situation with the coronavirus," Randall 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 a bit unknown. I currently view it as an isolated event, although it is serious."

Still, Mullett's tone is optimistic—provided the virus spread slows or stops.

"I do believe we will recover from this in the coming months," Mullett told Transport Dive. "But those months could be tough for trucking. Transportation stocks are taking a hit right now. There's no reason to think they'll bounce back quickly... I remain generally optimistic right now."

One reason? Mullett said capacity has declined, meaning fleet rates will rise. Another analyst also believes rates will move higher, even if the tightening of capacity is not directly linked to rising consumer demand.

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

Coyote Logistics regularly publishesfull truckload market forecasts。

Problems that emerged in 2019—bankruptcies, shutdowns, union strikes,falling 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 how the economy performs in 2020.

"If the economy materially weakens from here, whether triggered by COVID-19 or not, we would see lower peaks and return to (rate) deflation as early as the first half of 2021, but the inflationary phase of the cyclewill last through 2020," Pickett said.

Before the COVID-19 fog arrived, the driver shortage and e-commerce were hot topics for 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 trucking demand, there was less need for drivers.

"The situation didn't worsen because we solved the problem," Costello said. "The situation didn't worsen because the industry slowed down. The root causes of the driver shortage haven't 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 & Exhibitionin San Diego, Costello said the shortage could reach as high as 105,000 drivers 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 of gasoline and 24.4 cents per gallon of diesel. These rates have not been raised since 1993, and ATA, the American Automobile Association, and the U.S. Chamber of Commerce say they believe raising the 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 veteran tax lobbyist said a fuel tax increase in an infrastructure bill would not happen in 2020.

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

Public transit receives 28% of the Highway Trust Fund, and Norquist wants to end this diversion 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 a fuel tax increase in 2020 would not hurt 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 spending programs you can have," Costello said. "It's very stimulating. It creates jobs. There are secondary effects when you build new infrastructure and repair infrastructure."

But infrastructure funding could bring problems for trucking. Some federal officials are considering a trucking-specific tax increase—the "VMT," a tax based on vehicle miles traveled.

Not everyone in the industry welcomes a new fuel tax. Mullett said he believes that if a higher fuel tax or VMT passes in 2020, it could create economic problems for trucking.

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