Trucking executives coping with ongoing COVID-19 disruptions in volumes, supply chains

Trucking markets roiled. Supply chains turned upside down. Worries about truck drivers’ welfare and customers just staying in business. And unemployment rates that rival those of the Great Depression.

Trucking executives say the word “disruption” does not begin to describe the impact of COVID-19 on freight volumes and demand. Forget about turning a profit, they say. Let’s just concentrate on staying in business.

“Man, we’re in trying times,” Chuck Hammel, president of Pitt Ohio, a major LTL carrier, told LM. “Who would have ever thought a black swan event like this virus was just around the corner? Nobody…”

The problem, Hammel says, is “dealing with the ever-changing conditions on the ground. Some of our customers are off the charts busy and others are slower or closed down. It depends on whether your company is an essential services provider or not.”

The problem is freight volumes, which rose quickly to replenish needed supplies at the start of the outbreak in March, are now falling in April as fast as they rose in March. This whipsaw effect is the worst for motor carrier executives, who have to alter their freight routes as quickly as shippers try to change their supply chains.

As far as how this crisis compares with the aftermath of 9/11 or the Great Recession, Hammel says flatly, “This is in a class by itself—and the most challenging by far.”

Economic data is awful – unemployment claims are 10 times the Great Recession peak of 665,000. Most of the economy is sputtering to a halt, including most truckload freight. Hammel says the safety of Pitt Ohio’s employees comes first, customers “a close second.”

Like many fellow LTL carriers, Pitt Ohio’s volumes are off roughly 20 percent year over year. For now, the only sweet spot for motor carriers– and it’s a temporary one – is in the spot market for truckload services.

In the spot market, truckload rates continued to rise in late March for van and reefer equipment, according to DAT Analytics, a research firm. That was due to retail inventory replenishment, but declining load-to-truck ratios signal that rates are likely to fall this month, DAT predicted. The Southeast may be the strongest for spot TL rates, however, as ratios are still rising on northbound lanes from that region, according to DAT data.

And it’s not just in the spot market where shippers will be paying higher rates. This month FedEx Corp. began what it calls “a temporary surcharge” on all international parcel and freight shipments in the FedEx global network due to the pandemic.

FedEx temporarily halted its guarantees for FedEx Express, FedEx Ground and FedEx Freight services. UPS similarly suspended all service guarantees.

The Institute for Supply Management said its manufacturing index slipped to 49.1% last month from 50.1%. Readings under 50% indicate more companies are expanding instead of shrinking. Manufacturers reported their sharpest drop in 11 years.

The index is all but certain to sink next month, though a few industries are likely to hold up surprisingly well because of an increase in demand for products such as toilet paper, sanitizer and other consumer goods in short supply.

DAT reported van rates may fall as fast as they rose, as declining load-to-truck ratios signal the end of the coronavirus-fueled spike in spot freight. Retail inventories are still being depleted and replenished at a rapid pace, but the freight pipeline is “depleted because of business closures all over the country,” DAT reported.

“Plus, many consumers face sudden job losses, making them wary about discretionary spending,” DAT said in a research note.

 Spot truckload rates peaked on March 22 and then tumbled during the week ending March 29 as supply chains respond to the COVID-19 outbreak.

The national average rates for spot van and refrigerated have settled down at levels that are more in line with seasonal expectations, said DAT Solutions, which operates the industry’s largest load board network.

But DAT quickly added: “However, given how uncertain business conditions are right now, it’s unclear whether the trend will turn into a sharp downward rate correction, a holding pattern, or a return to the upward trajectory of recent weeks.’

What happened: New orders for manufactured goods slumped in March. The ISM’s new-orders index fell 7.6 points to 42.2% — the lowest level since the end of the 2007-2009 Great Recession.

And retail is no bargain either. Macy’s said it would lay off a majority of its125,000 workers nationwide. The Gap said it would also be furloughing nearly 80,000 workers in its North American outlets in what is being called a “retail apocalypse.”

To date, more than a half million workers in retail have been furloughed because of Covid-19 between recent announcements from Macy’s, Kohl’s, Gap, Ascena (parent of the Loft), and others.

Even high-end Neiman Marcus said its stores will remain dark until at least April 30, likely longer, and that a “large portion” of its workforce has either been furloughed or has taken a pay cut.

Disruptions abound. The YRC terminal in Taylor, Mich., covering greater Detroit pickups was closed briefly after an outbound supervisor tested positive and was in contact with 23 employees that had to be quarantined. The terminal was cleaned by a professional crew and was approved to be reopened by the Wayne County Health Department.

Despite that, YRC is still making all local pickups and moving freight through linehaul due to their outbound workers being off on quarantine.   

Rival ArcBest, parent of long-haul LTL carrier ABF Freight, said it drew down the $180 million on the borrowing line of its credit facility. The trucking company called the borrowings “a proactive measure” to increase its cash position and preserve financial flexibility in light of general economic and financial market uncertainty resulting from the COVID-19 outbreak.

The funds are said to supplement ARCB's already strong cash and short-term investments position. With the addition of the new funds, ArcBest expects to be sitting on ~$530M to $540M on March 31.

Owner-operators are seeing strong freight volumes now but should prepare for a “freight cliff,” according to Todd Amen, CEO and president of American Truck Business Services (ATBS). Amen said the coronavirus pandemic has provided the trucking industry with a “huge opportunity” to move freight – at least in the short term.

“Right now, trade is strong, America is hoarding goods,” Amen said on a conference call from the ATBS’ annual Independent Contractor Benchmarks and Trends. “But a lot depends on how long the coronavirus epidemic keeps us all locked up.”

NATSO, representing truck stops and travel plazas, and the American Trucking Associations (ATA) have urged state and local governments to carefully consider the operational differences of essential businesses when implementing social distancing guidelines to ensure that truckstops and travel plazas can safely serve commercial drivers without delaying the delivery of critical emergency relief supplies during the COVID-19 pandemic. 

Pennsylvania Gov. Tom Wolf received instant criticism when the Keystone State briefly closed rest stop areas along the 300-mile Pennsylvania Turnpike. The effect of that was to deny truck drivers bathroom breaks. The ordered was immediately rescinded.

Because social distancing limits of as few 10 people, this resulted in drivers waiting in long lines to enter nearly empty truck stops in order to purchase food and use the facilities.

And it isn’t just truck drivers affected by the virus. The cargo ship Gjertrud Maersk, which has a capacity of 9,074 twenty-foot equivalent units (TEUs),  has become what is thought to be the first container ship in the world reported to carry the coronavirus.

Seven crew members were evacuated from the vessel in Ningbo, China, in late March, the company said. One was diagnosed with COVID-19 and four seafarers are asymptomatic infected individuals, according to press reports. Two tested negative. The hospitalized seafarers are all in stable condition.

If there’s a bright spot, diesel fuel prices have plunged.  across the U.S. dropped more than 7 cents per gallon from last Monday, according to a March 30 report from the U.S. Energy Information Administration

This is the 12th week of consecutive decreases. Weekly average diesel fuel prices for the U.S. have been dropping since Jan. 6. California’s average price for a gallon of diesel dropped 15.7 cents, pulling the average for the entire West Coast down by 12.2 cents.

Average prices in all other regions and subregions are below $3 per gallon. The lowest per-gallon price is in the Gulf Coast region at $2.363. A year ago, the average U.S. price was 49.2 cents higher.

“I don’t think this is going to end anytime soon,” Pitt Ohio’s Hammel says of his customers’ disrupted supply chains. “And when it does end many industries and businesses will be slow to recover especially restaurants, movie theaters, concert venues and any others that have larger crowds.

“The truth is I have no clue how things will restart once this is under control but I suspect the recovery will be slower overall but certain industries will boom. And there will be new industries to emerge. I also think there will be a new normal much like we had after the financial markets collapsed and the Great Recession started. The recovery there was also tough to predict as evidenced by how many respected economists were wrong. So we all need to read the tea leaves.”