Freightvine host Chris Caplice and Coyote Logistics’ Chief Strategy Officer Chris Pickett discuss how the pandemic in progress continues to alter the freight market and the possible insights derived about the broader economy and the recovery to come.
COVID-19 has brought about rapid economic changes to the freight market
Volatility is the predominant theme, with net inflationary pressures developing as consumers “pantry stock.” The sharp demand increase for essential industries – food and beverage, retail grocery, and segments of CPG – outweighed the sharp declines for non-essential sectors such as automotive, industrial, and hospitality. Two to three weeks in, the downside demand for durable goods began to outweigh the demand in essentials, resulting in reduced overall truckload volumes.
This pattern was borne out in the spot market, where carriers and shippers experienced severe pricing whiplash. The effects of stay-at-home orders and subsequent changes in consumer behavior have turned carrier networks upside down. This is a situation where non-asset-based, third-party logistics providers like Coyote Logistics typically thrive. However, the magnitude and immediacy of consumption patterns is unprecedented, and that’s ultimately stressing the entire system.
The economic changes tell their own story
Without a doubt, freight drivers have demonstrated (and they continue to show) incredible heroism in their efforts to keep freight moving and, for the most part, keeping the shelves stocked. It’s been necessary for carriers to put in place health-focused protocols to keep shippers and receivers safe. As directives from both federal and state governments continue to change, carriers and shippers continue to show flexibility, agility, and empathy in the process of keeping the wheels of the economy from coming to a grinding halt. The coming weeks will be even more volatile and complex as states begin relaxing stay-at-home orders. Carrier networks will make the necessary adjustments – as they always do – but these ongoing changes will present drivers with additional risk factors.
What lessons can we take away from recessions past?
The 2008 Great Recession is still fresh in many minds. What insights can be taken from that downturn along with findings from the Coyote Curve – an internal model developed by Coyote Logistics – to inform our eventual plans?
Pre-pandemic, capacity was likely to be scarce. Recession risks were also on the high side based on industrial production indicators at the time. Oddly enough, when reviewing spot market activity during 2009, one finds that rates remained inflationary. So, can we expect the same during this possible recession? At this point, that’s unlikely given the depressed price of diesel fuel.
Three possible developments could alter this outlook. First, the 2020 economy does not shrink as much as forecasts indicate. Secondly, an accelerating loss of truckload capacity brought on by a spike in diesel fuel prices after bottoming out. Lastly, if the country is on the receiving end of an unusually active Atlantic hurricane season.
There are many variables to consider as we slowly emerge from the pandemic
In light of the relaxing of stay-at-home orders that is already underway in some southern states (with other parts of the country following suit over the next 30 to 60 days), a staggered recovery by segment is the most likely outcome. As workers in the construction and restaurant industries return to their jobs, their income will make its way to other business sectors. Commercial real estate will be a wildcard as many organizations have become more comfortable with the concept of work-from-home. Industries that depend on the import market will have to contend with the opening of ports in different jurisdictions throughout the country, and many of the busiest ports are making preparations to quickly ramp up operations when demand finally does materialize.
This episode recap was written by Reid Johnson, Product Manager, FMIC at Chainalytics.
Market Update & Forecast: 23 April 2020
Dry Van
Active contract rates were up 1% while spot rates decreased by 4%. Replacement rates rose by 2%.
Temp-Control
Active contact rates were down 0.5%, and spot rates decreased 3.5%. However, replacement rates went up 3%.
Intermodal
Active contact rates rose 1%, and spot rates were down 2%. Replacement rates dropped by 3%.
Replacement rates remain positive for Dry Van and Temp-Control due mainly to the spike in spot rates during the initial period of panic-buying (after stay-at-home orders were first put into place). Volumes have not dropped significantly – yet – because increased retail shipments continue to prop up reduced industrial loads. Networks have been substantially disrupted, and tender acceptance of primary carriers has dropped as a result. Shippers continue to find capacity, even if it is in the spot market. Still, carriers are likely facing compressed margins as they contend with increased empty miles and while they shift around their capacity.
