Across the globe, COVID-19 has upended nearly every industry you can think of. And although the trucking industry has remained essential, the transportation sector has faced increasingly strong financial headwinds. While there have been gains made in industrial production and housing, increased in COVID-19 cases across the country have created a lot of uncertainty for trucking companies. Fortunately, we are here to help.
So, where does the trucking industry stand? Looking at data provided by the FTR transportation research institute, the current forecast for truck freight loadings looks to be just under 6% of where it was last year. Although there have been some improvements in industrial and housing starts, the trucking industry is still on somewhat unstable ground. Many do not expect volumes to recover to pre-crisis levels until at least the first half of 2021.
The Current Situation
Spot freight numbers are currently trending in positive territory, but how long will that last? Two weeks ago, the total freight and dry van numbers were the highest they have been in nearly two years, though there was a dip from the Fourth of July holiday. Still, many industry insiders are saying it is soon to know if a few weeks of solid growth will lead to a larger recovery in the freight sector.
Let’s also have a look at truck utilization statistics, which have a direct impact on the final rates used on the market. Looking at the share of commercial motor vehicles actually engaged in moving loads, many feel the industry has basically bottomed out, but is also still in a precarious position. At this stage many industry insiders anticipate a steady improvement over the course of the next year, but there are still a lot of unknowns, especially when it comes to COVID-19.
One bit of good news to come out of this whole thing is that fatality rates have dropped sharply, though most of that can be attributed to no one being on the roads these days. With few passenger cars out on interstate highways, there are far less opportunities for accidents. While this is a good thing, it is a silver lining to an otherwise bad situation.
The primary factor driving the economy, however, is not road fatalities. It is more about what’s happening with the number of new Coronavirus cases. The picture in the United States is currently very bleak, with cases surging to more than 60,000 cases a day, more than double the previous peak. In total, more than 3 million people have been diagnosed with COVID-19 since the crisis began, and nearly 134,000 have died.
While cases are rising because of increased testing, the fact is that the percentage of positive tests is also rising, not just the raw number. This points to increased community transmission and a decreased likelihood that many states and municipalities will be able to contain the virus. If it were just more testing, the expectation is that the positive tests as a percentage would stay even keel. But that isn’t the case. The United States has almost tripled the positive test rate and we are seeing the infection rate start to move closer to the tenth percentile.
The Economy at Risk
Even worse, these numbers do not bode well for the overall state of the economy. With Florida, Texas, and California shut down as COVID cases rise, only time will tell how this will shake out in the overall economy. Texas and California have been pretty aggressive in their efforts to contain the virus, but will they prevail? What those states do have a big impact on overall GDP. With the energy and chemical market in Texas and the food-producing regions of California and Florida under pressure, who knows where this could lead.
FTR does not factor Congressional action into their forecasts because of how glacial the legislative process is. But there were a couple areas that merited their attention. The first is infrastructure funding and the second is pandemic stimulus.
Why? Because it is highly unlikely we will see an infrastructure highway funding measure pass until 2021. No matter which way the presidential election goes, it won’t be until next year that serious attention is paid to infrastructure funding. While both the House and the Senate have infrastructure bills on the docket, the two are way too different to expect a compromise during an election year.
Have you heard? The Bureau of Labor Statistics reported a return of 4.8 million jobs in June from what we had lost when the economy was shuttered as COVID-19 exploded. This would wind up improving the unemployment rate to 11.1%. Yet, there are dark clouds on the horizon.
Even more, if we look at where we are relative to February, the seasonally adjusted data is still over ten percent below February levels throughout the economy. What does this mean? That no real important sector of the economy has fully recovered from the Coronavirus pandemic.
If you look closely at new unemployment claims, the country continues to see extraordinary numbers. How extraordinary? Well, over 1 million people reported recently for unemployment claims and it has not changed all that much in the last several weeks. Even after nearly three months of this crisis, we still have not seen any major abatement of overall unemployment claims.
Data through the end of June demonstrated that just over eighteen million people continue to get unemployment payments. Prior to the COVID-19 crisis, the highest the United States had seen apply for unemployment benefits was just over six million. Obviously, this crisis has blown those numbers out of the water.
Still, can Congress do something? The extra six hundred per week that workers were receiving in unemployment being funded by the federal government runs out at the end of this month. That money is also going to some independent contractors and sole proprietors – meaning owner-operators. Unless Congress extends additional benefits, the flow of cash is going to end soon, which will leave many people unemployed, which will result in a massive reduction of capital pumped into the economy.
An Improvement in Trucking Jobs?
If one were to look at trucking jobs in particular, on a seasonally adjusted basis, the trucking industry added just over 8,000 new jobs. While that may sound like good thing, inreality, it is a fraction of the jobs lost in the trucking industry in April and March. How so? Well, since February of this year, the industry has lost nearly 87,000 jobs. This is a catastrophic number.
The trucking segments that saw the biggest impact were less-than-truckload and household goods. The only exception was the urban delivery market, which, thanks to e-commerce, has been a growth market for the transportation sector.
Fortunately, the Payroll Protection Plan loans have helped preserve some trucking sector jobs. Recently released data on PPP recipients showed that nearly 12,000 companies that fall under truck transportation got loans of $150,000 or more, and nearly 43% of those were local general freight. This represents a problem for the industry. Fortunately, Congress recently relaxed the rules on who qualifies for PPP loans.
Another problem is that recent changes to the rules for PPP loans mean some of the jobs they support may not come back until later in the year. These represent permanent job losses in the broader economy. Fortunately, there are bright spots.
Light at the End of the Tunnel
Record-low mortgage rates may help drive a resurgence in the home-building market, which could be good news for all sorts of freight loads, whether it be interior design furnishings or basic construction deliveries. While the trucking industry has seen industrial demand tick back up, there seems to be a disconnect between trucking and carload recovery numbers that could represent a major problem for industrial deliveries.
Many hope that we will see demand pick up as things have started to open and started moving that inventory through the system. Obviously, truck freight will benefit from this new paradigm. The fact is the industrial sector was sitting on inventory and many are happy to begin seeing that inventory move.
The problem is, there are issues in intermodal delivery. The data clearly shows we are not seeing the industrial sector picking up, even if there were good headwinds in the beginning. Take chemicals and metals as concrete examples. The industry has only recently seen increases there, and those two go into a huge amount of manufacturing.
Many wonder if this is a short term recovery. The problem is that if it is, it can’t last. Many in the industry don’t see trucking numbers staying at the levels they are now, and especially as inventories come down and the initial exuberance of the – post consumer lockdown – starts to dissipate. Where this leaves the trucking industry is anybody’s guess.