FTR webcast takes deep dive into impact of COVID-19 on trucking, rail, and intermodal

As the coronavirus, or COVID-19, pandemic continues, there have been myriad ways in which it has impacted different facets of supply chain and logistics operations. A webcast hosted this week by freight transportation consultancy FTR took a detailed look into the impact of coronavirus on the trucking, rail, and intermodal sectors.

On the trucking side, Avery Vise, FTR Vice President of Trucking, explained that, unlike other sectors of the economy, trucking has some near-term pressure, in the form of increased activity, saying it is actually surging.

“One example is refrigerated [reefer] loads that were up 40% week over week one week ago,” said Vise. “There have been reports of problems dealing with picking up and delivering loads and driver lifestyle issues on the road, and it is all adding to more pressure. One of the things we are hearing is that one of the problems in getting capacity is the fear that carriers and operators have getting a load into heavily-impacted [COVID-19] areas like California or New York. There is a health risk and a feeling that there is going to be a lot less of an opportunity to get freight out, which is causing a lot of rate pressure right now particularly in dry van and refrigerated. This is going to be temporary; we are looking at weeks not months.”

Looking at the truckload spot market, Vise said it may hold up a little longer than just the time it takes to restock, because of the current level of disruption and the imbalance in freight. As an example, he observed that while food production is an essential service, that does not mean that the harvests will occur as scheduled, leaving potential there for disruption that could keep the spot market a little elevated. But, on an over all basis, he said that freight is going to get hit hard.

That was evident in an FTR forecast, which is calling for truck loadings to be down 4% for 2020, a lower outlook than its previous forecast prior to COVID-19 of a 1.3% increase, which Vise described as a pretty big delta.

“The hardest areas it is going to hit are the industrial sector,” he said. “Flatbed is going to feel a whiplash, because it was strengthening earlier, due to housing starts, and it is now going to be hit, at least in the near term, by a drop in housing starts, as well as what is going on with oil and a potential collapse in demand in the Permian Basin.”

When asked how long it will be before large motor carriers get aggressive in going after spot loads just to keep trucks moving, Vise said he does not think it will take long.

“We are already hearing from carriers that their usual freight is gone,” he said. “I think that is definitely happening already and is probably going to happen even more. Some carriers have indicated they are changing their networks on the fly…what that basically means is that they are using the spot market to reconfigure their network. That is going to put additional pressure on the small carriers, I think, that are already under a lot of pressure over truck insurance going up. I can see a pause in the actual increase as a matter of not hurting too many carriers.”

Vise also addressed the sudden decline in fuel prices, as it relates to trucking.

“In the near term, there are going to be some carriers that are going to have a nice little cash flow, because they are involved in restocking or at least taking advantage of the spot market at a time when fuel prices are dropping sharply,” he noted. “This will be the case for a while. We are looking at diesel prices potentially getting down to the $2.30-to-$2.40 per gallon range. That will help a little for cash flow in the near term, but [carriers] are going to need to keep that cash, because their freight is going to fall off pretty quickly.”

Looking at other modes, FTR Vice President of Rail and Intermodal Todd Tranausky said on the webcast that intermodal is going to be under more pressure than originally anticipated coming into 2020.

“We expected intermodal to have a slight positive year after a very negative 2019,” he said. “Now, that is not the case, and we expect volumes to be a lot weaker because not only do you have extended supply disruptions, you also have imports being down for February in a significant way that will continue in March and April, due to Chinese factories being offline, due to the Lunar New Year. Once we get back to imports coming into the U.S., there is going to be a demand question, and what does demand look like, at that point, in the U.S. for those discretionary goods?”

With people buying a large amount of consumer staples right now, there is decline for items like dishwashers and flat screen TVs, and other items that move in containers via intermodal, he said.

“Demand is probably going to be weaker, especially in the second and third quarters, as we start to build back up in the economy, and you are going to have more competitive truck competition for intermodal goods,” he said. “There is going to be capacity out there in the trucking market and low diesel prices that will help trucks be more competitive. Intermodal is going to have to face those headwinds for longer.”

On the rail carload side, Tranausky said that over all carloads are going to be down significantly in 2020, down from a previous expectation of being flat to a little bit lower.

“Part of that is due to the economy, and another part is coal, which is a huge part of the carload number and the largest piece of it by volume, even though it is declining,” he said. “When you look at low electricity demand, cheap natural gas that has gone down further as the energy complex has declined in recent weeks, that is going to be the headwind as we move forward. And that is going to bleed into the economically-sensitive categories like autos, which have gotten a lot of headlines, due to plant closures, as well as metals and plastic pellets, which could be affected as global economies slow down.”  

Petroleum products, which have powered a lot of rail carload growth, are not likely to be the same growth driver as they have over the last 18-to-24 months, he observed, because lower crude oil prices make it not as economic for companies to ship Canadian crude down to the Gulf Coast, coupled with demand disruption globally and lower demand for refined products in Mexico, as there was prior to the COVID-19 outbreak.

When asked about 2020 Peak Season prospects, Tranausky explained it is fair to say that if there is one it will probably be fairly subdued, as there is a lot of inventory on hand at the moment, with more expected as China continues to ramp up production.

“The uncertainty there about whether there will be a Peak Season depends on how quickly we come out of this,” he said. “If we see a significant amount of economic activity from the middle of the third quarter on, people will start to feel comfortable about their job situations, and then maybe there is a little bit of a Peak Season. But with where we are right now, it is hard to see how we get there.”