Quick Transport Solutions Inc.

The Great Economic Bounce Back Has Arrived

Now that the US government projects a huge bounce back in economic activity, largely driven by surplus cash floating around the markets, many are saying the great economic bounce back has arrived. But might they be speaking too soon? There is still a lot of wreckage to clear from the COVID-19 pandemic. And while the trucking industry is certainly not facing near doom, issues remain.

It will take a lot of resiliency, innovation, and people working together. Trucking companies, shippers, and their partners are all active participants in a full rejuvenation of the U.S. economy. The supply chain has changed, some say permanently. Will you be ready for it?

A Look Back

To say 2020 was quite the year is an understatement for the ages. Not surprisingly, the COVID-19 pandemic decimated the U.S. economy. Business logistics costs dropped by 4%, the Dow Jones dropped by 7.1% and the London stock market dropped by 14.8%, unemployment jumped to 8.9%… we could go on. The fact is there were so many impacts it is hard to list all of them here.

Yet, all bad things must come to an end. With the country awash in stimulus money and businesses opening back up, the expectation is that the U.S. economy will grow by 7.7% this year. Increased vaccinations and a slow roll back to normal life have created the perfect conditions for sustained economic growth and a long-lasting recovery.

The final number for 2020 was a 3.5% retraction in GDP. Yet the global recovery is set to eclipse the drop in GDP growth. Even more, the global recovery will likely be even stronger than the recovery here in the United States. Economists are expecting 6.3% global growth in 2021, 4.6% in 2022, and 3.1% in 2023.

How Fleets Have Been Affected

Now the question is: “What does this mean for the average trucking company?” Well, the short answer is quite a bit. Obviously, carrier rates and volumes fell sharply early on in the pandemic, but companies kicked their inventory replenishment strategies into high gear, which drove growth in the second half of 2020.

Now we should see the continued economic recovery, inventory replenishment, and e-commerce growth create issues with capacity constraints. Together, these factors will conspire to keep rates high through the rest of the year. In fact, if you look at the Cass Freight Index, rates took a big dive in March and April of 2020, but then began to climb through the summer. By first quarter of 2021, the index was showing sustained, year-over-year growth and today rates are higher than they have ever been since records began.

The pandemic basically caused a sudden stoppage in the supply chain, but then just as quickly it restarted. But that restart was not without challenges. In many cases the supply chain had to be rerouted, stopped again for regional lockdowns, faced capacity shortages, prince increases, and so much more. Although the trucking and transportation sectors have a healthy outlook, this has been a bumpy road.

The Key is to Adapt

Fortunately, despite the pandemic and other big disruptions roiling the supply chain, we have seen that it continues to adapt. Manufacturers are shifting schedules and timelines and consumers are sourcing from different partners to keep a healthy flow of parts. Fleets and shippers alike are choosing to focus less on price and more on efficiency, ability, and adaptability.

No doubt, transportation companies of all stripes emerged from 2020 with a new appreciation and resilience for the capabilities already baked into the market. Now, halfway through 2021, companies have confirmed their ability to change plans and execute no matter what the market conditions may be.

Close collaboration with shippers and a heavy reliance on innovation and technology has been essential to ensure trucking companies of all sizes weather the rapidly changing market. Even though the pandemic made assets less efficient and completely threw out the window any pretense of predictability, the logistics and transportations sectors have done a remarkable job at staying effective despite the disruptions.

The K-shaped Recovery

Many economists were predicting a K-shaped recovery post-pandemic. Indeed, it looks like 2021 is shaping up to be just that. As one example, the hospitality, restaurant, travel, and leisure segments struggled mightily. Yet the grocery, retail, home improvement, and e-commerce sectors took off like a rocket ship. E-commerce purchases alone grew by 33% in the first half of 2021, making up a full 14% of all retail sales. And the supply chain has shifted again as a result.

Logistics management providers have begun to fully adopt the control tower concept, which posits that “resilience is most effective when paired with visibility.” Viewing your operation from the standpoint of a control tower allows you to make quick decisions and disperse information rapidly. The idea is to get into a planning mindset and get out of a reactive mindset.

The transportation sector has also seen fluctuations brought on by the increasing push towards a more sustainable future. Consumers are becoming more aware of what they use and how they use it and, as a result, they are more likely to weight the environmental impacts of their purchases. The same mindset goes for companies and governments as well. As a result, transportation operators have had to make a similar adjustment.

Moving forward, supply chains must ensure the continued movement of goods and services all while dealing with an unpredictable and volatile marketplace, tight capacity, and shifting rates. Speaking of rates, have you heard? The first half of 2021 has seen the highest rates the trucking industry has ever seen.

Looking at Demand and Structural Issues

The 2021 recovery has pushed demand for full truckload, LTL, and intermodal shipping services. But this demand was imbalanced, with challenging weather conditions and poor infrastructure in certain regions continuing to stymie the positive outlook. Still, if you look at 2020 from a big picture, the sector was more volatile than it has ever been, with tender acceptance at record lows and a lot more freight being pushed on the spot market.

Trucking companies also dealt with some structural problems, with poor fleet finances in 2019 and early 2020 causing a reduction in trucking companies investing in new equipment. With fewer trucks on the lot, many motor carriers had a hard time meeting the demand that rushed in both in late 2020 and early 2021. And while operators are now rushing to increase their procurement of Class 8 commercial motor vehicles, the supply crunch is hampering orders. 2021 saw first-quarter equipment orders rise to 45% higher than orders from every quarter in 2020 – combined.

The problems with aftermarket and parts supplies have further clouded the picture. As pandemic shutdowns slowed production and mucked up established supply chains, OEMs found it more difficult to fill orders and meet the demand that fleets were putting on them.

Amidst all this, many expect the Biden administration to revisit hours of service and other truck driver rules, such as mandating truck drivers be paid for detention time, likely at the cost of the shippers. This will have an impact. Because reducing detention will likely drive-up prices for end consumers. Still, it should also increase overall capacity, as shippers will be forced to adjust their behaviors rather than incur costs. As a result, truck drivers will be able to spend time in more direct trucking functions rather than waiting at a facility.

Positive News on the Horizon

Not all news is bad news in the age of pandemics. Look at the reefer sector as one example. Increased demand for refrigerated medicines and other goods, especially in the multi-zone segment, has resulted in reefer fleets and associated vendors experiencing incredible growth. Explosive growth like this creates investment opportunities that have knock-on effects throughout the entire transportation and supply chain sectors.

Another positive? The pandemic has created a no-touch environment, which has forced trucking companies – long used to old ways of doing things – to digitize their processes, update their equipment, innovate, and embrace technological solutions. The most promising aspect of digitization in the long-term will be the greater efficiency of LTL loads.

3PL and brokerage firms are also making similar moves. An evolving transportation market continues to move in the direction of online brokers and online freight booking. Online platforms allow shippers and carriers to do their transactions in a shared access space, which creates more trust and a greater sense of security and transparency. New digital matching functions give motor carriers the ability to place offers on loads. This allows them to operate in a more flexible manner. Due to this growth, expect to see the brokerage market more than double by 2024. In the end, it is important to remember that 2020 was challenging. Lessons were learned, but the trucking and transportation sectors survived. Now, with the economic recovery in full swing, firms will need to stay flexible and adapt to a new supply chain in order to thrive.

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