Following the recent consumer demand surge prompted by the threat of the pandemic, truckload volumes have fallen off a cliff, as the entire non-essential industrial economy has shut down leaving a massive capacity glut in its wake.
Panic buying took hold of US consumers in late February and March, and as a result, retailers began increasing order counts with consumer product goods vendors throughout the country.
That translated to more freight in the trucking market. Volumes, which had been sluggish prior, were at a several-year high.
Freight Volume Shrinks as Demand Declines
But those conditions have proven to be short-lived, and truckload volume has all but disappeared.
According to an article published in Freight Waves, “National outbound freight volumes are drying up as fast they came. Since the peak nine days ago, OTVI. USA has shed 12.5% to a current 10,974.47. In the same period preceding the peak, outbound tendered volumes rose nearly 11%.”
These statistics indicate that peak capacity demand is over and that overall consumption, across all sectors, is retreating to its pre-outbreak levels.
Industry experts predict that this pullback will take some time to recover from and that the overall health of the economy will impact freight for the next several quarters.
Lower Truckload Volume Equates to Issues for Providers
One publicly-traded logistics provider reported a “20% to 30% decline” in dispatched load volume. Further citing that they believe this will be the most “significant and rapid decline of the US economy in recent history.”
Another large logistics provider stated that 2020 would be a “lost year of earnings growth” in its most recent earnings call.
These figures and outlook will likely be shared across the logistics industry as more large providers offer their Q1 earnings and guidance for the coming year.
The downtrend will be particularly impactful for carriers and logistics providers that are heavily reliant on the industrial sector for freight.
Fed Manufacturing Indexes in March, dropped significantly indicating a significant contraction in a sector of the market many large third-party logistics providers rely heavily upon.
Because of this exposure, many in the industry could be at risk of closures or at least significant disruption.
It is vital to assess how your providers are positioned for the after-effects of COVID-19. Vendors working with providers that are not diversified could face disruptions and substantial risk themselves if not prepared.
Freight Rates Follow Truckload Volume Suit
As volume has declined, rates have also begun to fall.
According to an article published in Heavy Duty Trucking, “Spot rates continue to fall for vans, reefers, and flatbeds, and declining load-to-truck ratios signal that a rebound is not happening just yet. The weak freight market reflects the economic malaise due to coronavirus-related shutdowns and historically low oil prices.”
This downward pricing trend has made conditions tough on carriers. A recent piece in the Wall Street Journal reported that many smaller operations now “struggling under and upheaval in shipping markets.”
These low rate conditions have been created by economic stagnation from the nationwide COVID-19 lockdowns.
And even though the falling rates have made it tough for carriers to survive, CPG shippers should be taking advantage of lower prices. Brands should expect the rates they are receiving from logistics providers to be substantially less than what they received in March.
There is no definitive timeline on how long shipper-favorable rates will last. Much of future pricing estimates hinge on the impact the pandemic will have on domestic businesses in the long term. While its effects will not likely be as pronounced as usual, produce season could temporarily raise freight rates and occupy some regional capacity.
When Will the Logistics Industry Recover from COVID-19 Effects?
Much of the coming months will be dictated by how the economy responds to reopening.
While many industry providers brace for a downturn, other voices outside logistics have remained more optimistic that the effects of COVID-19 will dissipate more quickly.
According to a CNBC article, Goldman Sachs expects a GDP rebound in Q3. The financial firm predicts that the US will see a 19% surge in growth from Q2 numbers.
If this rapid recovery were to take place, the freight market might look more typical by the fall. That would mean more average freight rates and capacity capabilities as we head into peak season.
Work with a Customer-Focused Logistics Provider
Regardless of how the market takes shape in the coming months, it is critical that you work with a logistics provider that will work to provide your organization with stable pricing.
Partnering with a third-party provider can alleviate issues during any time of abnormal market conditions. It is essential to develop business continuity plans and have strategies in place to dampen the impacts of an economic downturn.
Zipline Logistics works exclusively within the CPG, food and beverage, and healthcare spaces. We continue to reduce overexposure to distressed industries. As a result, we can pass along transparent and stable pricing to our customers, which helps to avoid risk.