The trucking industry has hit several major speed bumps during the last several years. The required implementation of electronic logging devices (“ELDs”), changes to Hours-of-Service, and continuing driver shortages met with falling demand in 2019. The uncertainty introduced by the U.S.-China trade war resulted in lower demand. As of March 2020, COVID-19 is looking to be a significantly larger speed bump than the others.
The trucking and transportation industry was among the first U.S. industries to feel the impact of the COVID-19 pandemic. Only 12% of the U.S.’s economy is manufacturing based, and when the flow of goods from China ceased due to lockdowns and quarantines abroad, the supply of goods entering the U.S. rapidly dried up. FreightWaves estimates that Chinese imports account for 40% of all shipments entering the U.S. The annual celebration of Chinese New Year usually results in lower rail and truck shipments in the U.S. about three to six weeks later. By the beginning of March 2020, over 50 ship sailing had been canceled into Seattle, and some 60 were canceled into the Long Beach port. Agencies at both ports indicated that those cancellation numbers are typical of the whole year, not of just one quarter. Some trucking companies were already reducing capacity by the beginning of March.
The issues were not just limited to the availability of cargo. In an effort to prevent people from gathering closely together in enclosed spaces, restaurants and rest areas across the U.S. closed beginning in mid-March, limiting driver access to food while on the road. Companies that are able to run loads frequently have to return with their trailers empty due to uneven and declining demand. Brokers are having to travel longer distances to pick up loads.
The impacts of COVID-19 on intermodal transportation and trucking are expected to ripple through the economy. National supply chains are expected to be impacted and domestic manufacturing will feel a hit as well if raw materials become more difficult to source. Fears of a recession also loom for the trucking industry. The Bank of America Truck Shipper Survey, which was launched in 2012, hit an all-time low in the outlook for short-term demand. In a March 11 Morgan Stanley survey of 350 freight-transportation companies, 80% of respondents indicated that COVID-19 is impacting their business, up from 60% in late February.
Originally published in Mercer Capital's Transportation & Logistics Newsletter: First Quarter 2020