2020 was supposed to be a better year for trucks than 2019, with some of 2019’s economic downturns left in the rearview mirror.
The industry had hoped Congress would focus on an infrastructure bill to fix highways and bridges. Truck capacity fell in February, with significantly higher rates for fleets. Fleets hoped to make progress in 2020 against industry-specific problems such as driver shortages.
The economy overall looked solid, diesel fuel was cheap, e-commerce was growing and the Dow Jones Industrial Average had reached 29,000. Many economists did not predict a recession in 2020despite a slowdown in US manufacturing.
Then it became clear in late February that the new coronavirus and the resulting disease, COVID-19, did not spread in Asia, but spread around the world. What started as a remote health care issue had become more than just a logistics entanglement: it had forced some transport companies to cancel operations at ports, terminals and conventions.
The latest data came on March 3, when FTR, an Indiana-based research agency, reported North American Class 8 advance orders for February unexpectedly fell 20% from January, totaling 14,100 units. It was the lowest February order activity since 2010 and down 18% year-on-year, FTR said.
“This is not good news for the trucking industry or the economy,” Don Ake, vice president of commercial vehicles for FTR, said in a news release. “It appears that fleets have decided to delay some orders until the health crisis passes. There is no pressure for fleets to order more trucks as most carriers have enough capacity to handle the current freight volume.”
There is still no clear consensus on when COVID-19 will end, bringing all or most Chinese factories back online and ships to ports in Los Angeles and Long Beach, California. The virus and its impact have spooked the markets so much that some analysts believe they cannot now make a forecast for the rest of 2020.
“It has completely clouded the outlook for 2020,” Rajeev said Dhawan, director of the Center for Economic Forecasting at Georgia State University, speaking to Transport Dive. “Remember, the event is still going on, so you can’t have the financial impact if the event doesn’t end.”
Dhawan compared COVID 19 in a hurricane sitting offshore, certain to make landfall. As long as the hurricane is parked in the water, the hurricane does not cause damage, and therefore no financial estimates of the damage can be made, he said.
For other observers, the viral typhoon is moving closer and closer to landfall, or closer to extinction. The damage or lack of it will soon become known.
“I think we’re at the cusp of knowing if it’s really going to affect us,” said John Q. Anderson, an operating partner at Greenbriar Equity Group, speaking to Transport Dive.
Greenbriar Equity owns shares in LaserShip, a non-asset-based parcel delivery company; BDP International, a logistics company handling shipments of chemical, industrial and consumer goods; and SEKO Logistics, a global supply chain company.
“I was feeling bullish about tying or beating 2019.”
John Q. Anderson
Greenbriar Equity Group
Anderson said that if the spread of the new coronavirus stops or stops soon, the cumulative impact on corporate earnings will be reduced. But if world governments shut down some ports, factories and airports, there are economic consequences.
“Then you really affect the transportation and logistics outlook for the year,” Anderson said. “And I’m talking at least 5% to 10%, if not more, in terms of overall volumes, revenues, profits.”
This is a big change from Anderson’s first and earlier take on 2020.
“I was feeling bullish about tying or winning in 2019,” Anderson said.
But no one knows for sure, not even the people at the heart of truck advocacy. Bob Costello, the American Trucking Association’s chief economist, said he can tell people what will likely happen for the rest of 2020 if he knows what will happen with the spread of the virus. Large-scale quarantines or a short-lived outbreak lead Costello to different conclusions — but conclusions, However.
“At this point, I don’t know what’s likely to happen,” Costello told Transport Dive.
The virus is often the first issue freight analysts raise.
“I’m kind of caught up in the moment of the coronavirus,” Randall Mullett, a former XPO official and now principal at Virginia-based Mullett Strategies, told Transport Dive. “Is it something short-term … affecting consumer sentiment, supply chains and the demand curve? That’s kind of an unknown. I’m treating it right now as an isolated event, although it’s a serious event.”
Still, Mullett struck an optimistic tone — if the spread of the virus slows or stops.
“I think we’ll bounce back from that in the coming months,” Mullett told Transport Dive. “Now these few months could be tough for trucking. Transportation stocks are taking it on the chin right now. There’s no reason to think it’s going to be a real quick turnaround for them… Overall I’m still bullish on things right now.”
And a reason? Capacity has been reduced, which means there will be higher fares for fleets, Mullett said. Another analyst agrees that prices will rise, even if the reasons for the reduction in capacity are not directly related to the growing demand of consumers.
2020 began with reduced truckload capacity, meaning shippers began to have fewer options, Chris Pickett, chief strategy officer at Coyote Logistics, a UPS subsidiary, said in an email to Transport Dive. Spot rates, the weaker sibling of contracts, started to rise.
Coyote Logistics issues regular forecasts for the purchase of trucks.
The problems seen in 2019 — bankruptcies, closings, union strikes, etc.debt interest rates, rising insurance costs, increasing regulatory pressures and driver wage inflation — had the Darwinian effect of wiping out the weaker fleets. Trucking companies are now in a position to raise spot rates, Pickett said, but the range will depend on how the economy fares in 2020.
“If the economy weakens substantially from here, whether or not caused by COVID-19, we will have a lower peak and a return to deflation (rate) as early as the first half of 2021, but the inflationary leg of the cycle persist though 2020Pickett said.
Issues like the driver shortage and e-commerce were the hot topics for 2020, before the fog of COVID-19 arrived.
In July 2019, the ATA reported that the industry needed 60,800 more drivers at the end of 2018, just to meet freight demand.
ATA’s driver shortage numbers for 2019 won’t be available for several months, Costello told Transport Dive. However, he said the 2019 problems faced by trucking and manufacturing had the effect of reducing the shortage – less demand for trucks, less demand for drivers.
“It didn’t get worse because we figured it out,” Costello said. “It didn’t get worse because the industry slowed down. The underlying reasons for the driver shortage didn’t get better.”
The lack of a driver is the number one concern of the industry, according to the American Transportation Research Institute, an ATA service. In October, speaking to ATA San Diego Management Conference & Expo, Costello said the shortage could reach 105,000 drivers by 2023.
The driver shortage has topped the trucking industry’s woes for three years in a row
2017 | 2018 | 2019 | |
---|---|---|---|
1 | Missing driver | Missing driver | Missing driver |
2 | ELD command | HOS | HOS |
3 | HOS | Driver maintenance | Driver compensation |
4 | Truck parking | ELD command | Reservation/delay at customer premises |
5 | Driver maintenance | Truck parking | Truck parking |
Source: American Transportation Research Institute
ATA remains hopeful that President Donald Trump and Congress will approve an increase in the federal fuel tax. The federal fuel tax is 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel fuel. Those tax rates haven’t increased since 1993, and the ATA, the American Automobile Association and the U.S. Chamber of Commerce said they believe the tax increase would help fix the nation’s infrastructure and better fund the Highway Fund, the bulk of which of which is funded by sales taxes on gasoline, diesel and heavy-duty tractors.
A fuel tax hike in an infrastructure bill won’t happen in 2020, a longtime tax lobbyist says.
“The House said no, the Senate said no, that’s not happening,” said Grover Norquist, p.resident of Americans for Tax Reform, a Washington, DC-based taxpayer advocacy group he founded in 1985;
Mass transit receives 28% of the highway trust fund, a diversion Norquist wants to end to meet highway needs.
“Right in front of you are the resources you need to build the roads,” Norquist said. “Why would you put water in a bucket with a hole in it?”
A fuel tax increase in 2020 won’t hurt the industry, Costello said. Potholes and other road problems hurt trucks, so fleets will likely save money if the infrastructure is repaired, he said.
“This is some of the best government spending you can get,” Costello said. “It’s very stimulating. It creates jobs. There are spin-offs when you build new infrastructure and repair infrastructure.”
However, infrastructure funding could pose a problem for trucking. Some federal officials are considering a truck-specific tax increase — a “VMT,” a tax on vehicle miles traveled.
The new fuel taxes are not for everyone in the industry. Mullett said he believes the higher fuel tax, or a VMT, could create economic problems for trucking if passed in 2020.
“Each of these has put pressure on our industry,” Mullet said. “Especially if demand doesn’t pick up.”