This year is off to an atypical start as the freight market and the international economy braces for the full impact of the coronavirus.
We likely can not quantify the full impact of this disruption for some time. However, the freight market outlook, at least to start Q2, is brighter than other sectors of the domestic economy.
Notably, in the retail and grocery industry as increased demand for food, beverages, and household goods hit a fever pitch. Consumers throughout the United States bought and are continuing to buy at a frantic pace in response to the uncertainty that the pandemic brings.
That means more truckload and less-than-truckload shipments are needed to keep up with sped up buying. We are seeing several-year highs in freight volume. According to data gathered from Freight Waves SONAR, outbound tender volumes increased at a record pace.
How long this surge will last remains to be seen, but for the interim, stockpiling ahead of the pandemic is creating an abundance of freight for carriers to haul.
Hours of Service Requirements Suspended
CPG and medical supplies are in such high demand that the Trump administration suspended Hours of Service (HOS) requirements for some truck drivers.
According to an article published in Business Insider, “The Federal Motor Carrier Safety Administration (FMCSA) said Friday evening that truck drivers who are moving goods in support of emergency relief efforts related to the COVID-19 outbreaks will temporarily not have to follow the hours-of-service laws, which mandate how many hours a truck driver may work.”
This hour requirements halt is a temporary initiative to keep the CPG and medical supply chain moving even as other industries suspend business.
The FMCSA designates that drivers hauling any of the following can disregard the eight decades old HOS laws.
- Medical supplies and equipment related to the testing, diagnosis and treatment of COVID-19.
- Supplies and equipment, including masks, gloves, hand sanitizer, soap and disinfectants, necessary for healthcare worker, patient and community safety, sanitation, and prevention of COVID-19 spread in communities.
- Food for emergency restocking of stores.
- Equipment, supplies, and persons necessary for establishment and management of temporary housing and quarantine facilities related to COVID-19.
- Persons designated by Federal, State or local authorities for transport for medical, isolation or quarantine purposes.
- Personnel to provide medical or other emergency services.
As we move into the beginning of the second quarter of 2020, we can expect to see continued elevated demand for food, beverages, household cleaners, and medical supplies.
The increased need for these products could exceed any potential economic slowdown caused by the pandemic in the short term. Whether that reality lasts, hinges on the impact the virus will have on the domestic economy and American consumer.
If current trends are any indication, consumption patterns could substantially stretch capacity. Especially as imports from China rebound as the country’s production facilities move back online.
US Imports Hit Lull as Coronavirus Amplifies Trade War
Even before the outbreak of COVID-19, US imports were sluggish behind conditions created by increased tariffs on Chinese goods.
Volume at the Port of Los Angeles dropped significantly last year as the US-Chinese Trade War escalated throughout 2019. According to the Los Angeles Business Journal, traffic at the Port dropped by 17 percent in December when compared to 2018 figures.
The current global health crisis has only exacerbated those trends. According to an article published in Freight Waves, “Fewer ship calls in the midst of the coronavirus pandemic as well as lingering effects from the United States’ trade war with China resulted in a 17.9% year-over-year drop in imports at the Port of Long Beach in February.”
The effects of this import lull have not yet wholly hit producers in the US. That is even with increased demand for some products, as many producers had a safety stock of inventory piled ahead of proposed tariffs.
According to a 2019 article published in Axios, “Ahead of expected tariff increases on consumer goods from China, imports at the nation’s major retail container ports hit their highest level of the year in November.”
The influx in volume was directly tied to producers importing an abundance of inventory ahead of the proposed duty increase. However, for vendors that rely on Chinese imports for production, this holistic import stockpile could be tested as we begin Q2.
Import Rebound on Its Way as Produce Season Begins
US trade with China has not yet fully resumed. But manufacturing in China is rebounding, and its products will likely hit US markets sooner than usual.
According to an article published in Supply Chain Dive, goods that would typically travel via cargo ships are currently being transported via airfreight providers.
Moreover, these transportation companies are facing a capacity crunch as there is heightened demand for these products and need for them to go to market quickly.
And as they arrive in the US, the influx could further strain over-the-road capacity. According to an article published by DAT, the bounce-back from the Chinese import drop could drive dry van rates up as we head into the spring.
The import surge, coupled with the beginning of produce season in regional markets, could cause pronounced effects on rates and capacity. Produce is beginning to pick up in localized areas, and both factors could dually influence the trucking market.
Current Conditions Mirror Other Freight Market Swings
We do not have recent pandemic precedence that we can point to for direction during this time. Beyond the first few weeks of the quarter, much of Q2 will depend on the severity and longevity of the coronavirus outbreak.
If its effect on the US economy is contained, we could see a relatively temporary disruption. If its timeline is extended or is severe, the US economy could slide into a recession, which further muddies the projected freight outlook.
What we know for certain is that there will be uncertainty in the freight market in the months ahead. That is why it is as critical as ever to work with a true logistics partner to help mitigate freight market risk and pricing uncertainty that volatility can bring.
Despite this being a novel outbreak, there have been other events that have created similar volatile conditions. And partnering with a third-party provider can alleviate issues during any challenging market conditions.
It is essential to develop business continuity plans and have strategies in place to dampen the impacts of the coronavirus.
Zipline Logistics has plans in place to keep our customers’ freight moving through this difficult time.
Don’t let this event disrupt your operations. Work with Zipline Logistics to ensure that your business remains on-track during the coronavirus.
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