A review of the latest happenings across freight industries as well as a few discussion points about how the economy and industry begins to recover.
Domestic Trucking
True to the predictions, volumes in trucking collapsed; from mid-April on the load boards dried up and prices bottomed-out so low, many owner-operators have elected to park their rigs because it would cost them $/mile to take the load. The nation’s largest truckload carrier, Knight-Swift reported a 25.6% decline in 1st quarter earnings. Carriers focusing primarily in LTL have also felt the decreased volumes, but with stronger pricing have not seen as large losses across the boards – that is not to say many are not also feeling the pressure. Historically, Truckload pricing has larger peaks and valleys than Less-than-Truckload pricing.
South Korea launched the world’s largest boxship vessel capable of carrying 24,000 TEUs (20 foot equivalents). Unfortunately, most megaships are sitting in ports or sailing half-full at this time. However, shipbuilding is a pillar of the South Korean economy and this new ship serves as a statement. While most shipbuilders are going back to work across Asia, orders for cargo vessels are down 71% in the 1st quarter compared to 2019.
Rail Freight
CSX Corp. and Union Pacific Corp. have removed 100s of locomotives from operations as volumes continue to plummet across the board for rail freight. The 2nd quarter is expected to see a 25% drop in rail volume overall.
Air Freight
As governments discuss reopening economies and lifting quarantine orders, supply chain professionals are still betting on a lengthy recovery for air cargo capacity. Much of the available cargo capacity is based on passenger flights. It is expected even as people go back to work and factories ramp up production in coming months, people will not begin travelling internationally for an extended period of time.
Warehousing Rates
With consumers wildly swinging their buying habits and clamoring to certain goods in the face of COVID-19, it stands to reason the warehousing industry is doing quite well. As many stores moved from a “just in time” inventory approach to stockpiling the goods consumers are buying out daily, the need to stack inventory means an increased need in warehouse space. Average warehouse price per square foot is up 4.8% compared to last year.
Bouncing Back
- Volumes will return in the trucking industry but with fewer operators as several will have consolidated or closed their doors in the next 6 months.
- Consumers will continue to adjust buying patterns to include more online ordering and delivery required. This was already trending up and the push to stay home and avoid stores has only accelerated people’s comfort level in purchasing more items online.
- Businesses will try to diversify their supply chains rather than locking into a few close partnerships. The most recent trend for most manufacturers was to operate with a very Lean Supply Chain. Create fewer, but closer partnerships with suppliers in order to save on costs. Lean Supply Chains have their benefits, however we witnessed their biggest disadvantages in this pandemic. If a business only has a relationship with a few suppliers, and they dry up, other suppliers are likely already in close relationships with your competitors and prices for supplies are going to skyrocket.
- The current situation can’t be paralleled to past natural catastrophes because it is truly global. The best models for how to proceed are found by studying past recessions. Recovery will be steady and is visible in the mind’s eye, but most are betting the recovery is fairly gradual beginning in the 3rd quarter, and taking up to year before we see full recovery – that is if the stock market holds and consumer confidence returns early in the recovery process. We may also look to one more stimulus package later in the year to encourage spending.