‘There’s no getting around this’: Spot market surge masks freight economy’s dire outlook

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Updated Apr 16, 2020

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Though pockets of the trucking industry are currently benefitting from the spot market load rush to restock retailers and grocers, steep declines in freight demand loom – especially in the coming April-June quarter – as the effects of the COVID-19 coronavirus outbreak and the corresponding economic stop has frozen nearly all prominent freight sectors.

“The spot market itself might actually stay elevated for a while, but clearly overall freight volumes are going to begin to fade, especially in segments not related to food,” said Avery Vise, FTR’s vice president of trucking.“The spot market itself might actually stay elevated for a while, but clearly overall freight volumes are going to begin to fade, especially in segments not related to food,” said Avery Vise, FTR’s vice president of trucking.

Forecasting firm FTR on Wednesday released a new projection for the coming quarters, forecasting U.S. GPD to fall by 11% on an annualized basis compared to the first quarter and, more dramatically, for the goods transport sector to fall off by 24%. The firm forecasts third quarter GDP and goods transport to remain at depressed levels in the before climbing again in the year’s fourth quarter.

“There’s no getting around this,” said FTR CEO Eric Starks, citing the “significant impacts in the system” brought by the virus outbreak.

The spot boom and the media attention brought to the industry’s efforts to restock retailers has in some ways masked the already underlying woes of the freight market. And though reefer loads are expected to remain somewhat level, especially with produce season looming and with demand for cold grocery items still expected to remain elevated, other segments are projected to see a sharp decline, especially flatbed and bulk.

“It’s great because we’re seeing how trucking takes care of society and keeps shelves stocked and grocery stores and drug stores full and delivers critical equipment,” said Brian Fielkow, CEO of the 130-truck fleet Jetco Distribution. “On the other hand, major parts of the economy that rely on trucking have come to a standstill. The story that is going to unfold is that there are going to be haves and have-nots.”

“We’re seeing a huge surge in demand for dry van and reefer capacity,” said Chris Pickett, chief strategy officer at Coyote Logistics, particularly around food and beverage, medical supplies and hygiene products and, obviously, grocery.

However, manufacturing is at a standstill as plants close as part of shelter-at-home directives from states and municipalities. It’s unclear when manufacturing can bounce back, given the lingering uncertainty around the virus’ spread and the impact on business and consumer spending that underlies manufacturing output. Likewise, imports from China are non-existent due to the country’s shutdown over the COVID-19 outbreak there. Fuel and oil hauling have declined considerably due to lack of demand and plummeting oil prices, and construction activity suddenly faltered from its recent upward swing.

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Truckstop.com analyst Stephen Bindbeutel said the company recorded a boom in load postings last week for reefer and dry van, but a “sharp reduction” for flatbed. Available flatbed loads dipped by 14.3% week-over-week last week compared to an 8% jump for van and a nearly 40% jump for reefer.

He also expects dry van to see “sharply fewer loads” as the restocking winds down in the coming weeks.

Flatbed has mostly performed in line with seasonal trends so far, said Ken Adamo, chief of analytics at DAT. Looming flatbed wildcards include oil prices, housing starts and heavy construction. For example, though rock-bottom interest rates could spur investment, “it’s a double-edged sword,” he said, as credit standards tighten during a downturn and banks aren’t as willing to lend.

The No. 1 forecasting wildcard for all sectors, however, remains the containment of the COVID-19 outbreak and the extent to which lockdowns continue.

An extended quarantine, combined with government policies that could prove ineffective at mitigating the economic fallout, might tip the U.S. into “a deep and painful recession,” said Chris Pickett, chief strategy officer at Coyote Logistics. However, virus containment and a shorter economic stall, combined with potentially effective stimulus packages out of Washington, could hasten a rebound.

Coyote forecasts spot market rates to remain elevated throughout the year, mostly due to choppy surges in freight, said Pickett. The situation renders most shippers’ transportation planning for the year useless already.

“It’s important to keep in mind that it’s not just the net increase or decrease in total truckload demand, it’s the nature of the underlying freight flows,” he added. “Whatever transportation plan folks came into 2020 with, whether you are a shipper or a carrier, is pretty much out the window at this point. Given the demand and supply shocks, across the market we’re seeing a profound shift from planned contract moves to unplanned. Since most unplanned lanes don’t often have a contract rate on file to tender against,” pricing on those loads will be dictated by the spot market.

Notes on equipment orders, drivers and capacity:

• The double-whammy of a halt in manufacturing and freight slowdown likely will send orders and production rates for trucks and trailers plummeting. FTR’s Don Ake, vice president of commercial vehicles, set the production rate forecast for Class 8 trucks at just 24,000 units for the second quarter. “That’s equivalent to the worst three months during the Great Recession,” he says. Truck orders for January and February this year total nearly 32,000 units combined.

• Capacity is another major wildcard, especially given that drivers could choose to, or need to, stay home to self-quarantine in the near-term and, longer term, if carriers fail or lay off workers, drivers could leave the industry and not come back. “What’s going to happen with capacity? It’s hard to forecast until we see some hard data,” said Avery Vise, FTR’s vice president of trucking. Some carriers have already reported up to 15% of their drivers had opted to stay home of late to self-isolate.

Capacity was already tightening prior to the COVID-19 outbreak as part of an adjustment during a tough year in 2019. Now, with the spot boom, carriers and shippers are struggling to adjust to the supply chain shock, said Pickett. “Any freight market supply or demand dislocation, whether we are talking about produce season, CVSA Roadcheck or a major hurricane, was going to have a much greater impact to market rates than last year. This just happens to be the mother of all dislocations — the extent of which we are only just seeing the start of.”