Fisher: Impact of COVID-19 on trucking industry

The trucking industry started 2020 off with great expectations.

Economists had forecast the economy would continue to grow at over 2% and that freight rates would firm up by about 2% as the year progressed due to truck availability being more constrained compared with 2019. January and February were strong months for economic growth.

However, no one could ever have guessed that an invisible, silent, runaway, malevolent and deadly contagion, called COVID-19, would bring the industry, the country and the world to a dead stop by mid-March.

In an effort to control the spread of the coronavirus, for which there is no immunization, most countries issued stay-at-home orders and forced the closure of non-essential businesses. These measures resulted in the almost immediate tanking of economies worldwide.

Only those businesses deemed essential to maintaining life, such as hospitals, grocery stores and transportation-related companies, continued in operation. Consumers sped to the grocery stores to snap up the necessities of life, including food, antibacterial soap and, for some unknown reason, toilet paper.

By mid-April, the outbreak had:

• raised the nation's unemployment rate to 14.7%, the highest since the Great Depression, with 41 million people out of work;

• closed many businesses, particularly small ones; and

• killed more than 25,000 people in the U.S. alone.

The trucking industry was swept into the maelstrom of the pandemic's economic ravages. Every segment of the industry, from all types of fleets including truckload, less-than-truckload, refrigerated, flatbed and final mile carriers to truck makers, truck dealers, repair shops, tire dealers, truck stops and all their customers felt the impact of COVID-19.

Many drivers and smaller fleets parked their trucks and elected to wait out the contagion in the safety of their own homes. Others risked their own health to keep the supply chain of essential materials filled and moving to wherever it was needed.

With so many businesses closed or operating at low capacity, truckload shipments plunged.

In April, truck tonnage declined 11.3% from April 2019, which was the steepest year-over-year decline since 2009 and the largest decline in 26 years, when there was a labor strike (April 1994).

On a month-to-month basis, April was down 12.2% from March. Some fleets that haul food for grocery stores and those involved in the online retail supply chain fared better than others, but most fleets saw their freight business dry up.

Flatbed freight was in collapse since housing starts plummeted 33.8% from a year ago with the onset of the coronavirus, as had other construction segments. Manufacturing also fell to an extremely low level.

While refrigerated freight was forecast to tick upward slightly, the forecast for that segment also trended negative.

Tank truck carriers' volumes dropped in half as demand for fuel and milk fell sharply during the nation's broad-based lockdown. Gasoline and diesel fuel consumption dropped 44% and 15%, respectively, in April.

Milk demand dropped as much as 15% as millions of daily cafeteria breakfasts and lunches that usually include a carton of milk were not served because schools were closed.

As a result there was an excess of 2.7 million to 3.7 million gallons of milk a day that was being produced over demand and much of it wasted. Economists are now forecasting a 9% overall decline for truck loadings this year from last.

The drop in freight tonnage has put downward pressure on freight rates. Rates have fallen to five-year lows for both refrigerated and flatbed freight.

Linehaul rates have fallen by nearly 25% since the start of the year. Spot rates are in dangerously low territory for owner-operators and small carriers, many of which parked their trucks to wait for better business conditions.

Despite this, there is still much more capacity than there is freight, which is keeping freight rates down. In April spot rates dropped 14% from March levels and were expected to drop more than 20% in May from March.

A combination of the industry's business conditions and the realities of protecting employees and customers from the coronavirus has forced fleets to drastically change the way they operate.

With the loss of freight and customers seeking payment extensions, fleets were forced to cut back on staff, including their non-driving workforce as well as their drivers. Most larger fleets utilized technology to enable their remaining office staff to work from home. Salespeople no longer visit customers face-to-face but make virtual visits instead.

Some companies have removed tables and chairs from their driver break rooms to promote social distancing and provide drivers with boxed lunches to limit their exposure when on the road. Drivers also are provided masks, disposable gloves and cleaning wipes.

Some fleets have added new features to their in-cab technology that enable drivers to find available tractor-trailer parking easily as well as grocery stores to enable them to track down meals. Other fleets have worked to make the delivery process digital, streamlined and contactless by having customers agree not to require a signature upon delivery.

Truck tire dealers and fleet maintenance managers also have changed their operations in response to the coronavirus and are following CDC recommendations.

Sanitizer dispensers are ubiquitous in all shops, and all incoming trucks are wiped down before work begins to protect technicians. After the repairs are made, trucks are wiped down again before given back to the drivers.

Some fleets make a concerted effort to keep technicians out of the truck as much as possible by having drivers perform their own minor and routine inspections, like checking lights and brakes, while the technician stands outside the vehicle. Cleaning and disinfecting facilities and equipment, including trucks, is now routine.

In the days and weeks following the outbreak, fleets were forced to deal with the logistical issues surrounding drivers who got sick or tested positive for COVID-19 while on the job. The nature of truck drivers' jobs prohibits them from self-isolating and requires they go into public places, such as truck stops, heightening the risks they face.

When drivers do get sick, fleets must first find them medical care or a place for them to quarantine or get them home as soon as possible. They can't be stuck out on the road by themselves.

Then the trucks and loads that might be stranded must be retrieved and, according to the Centers for Disease Control and Prevention (CDC) guidelines, employees at shippers and receivers with whom the drivers may have come into contact have to be notified.

The Federal Motor Carrier and Safety Administration (FMCSA) issued new guidelines April 1 in regard to truck drivers who were delivering in areas hit hardest by COVID-19, which said drivers "should stay in their vehicles as much as possible as supplies are loaded and unloaded, avoid being within six feet of others as much as possible when they exit their vehicles, and move to electronic receipts if possible."

The CDC added that drivers should wash their hands and practice social distancing as much as possible when they have to stay in restricted areas to get rest.

As a result of the pandemic, the deepening U.S. recession and the drop in freight tonnage, trucking's biggest challenge, the driver shortage, is over, at least for the time being.

Prior to March, the American Trucking Associations (ATA) said it believed the industry was short around 60,000 drivers. Now the drop in freight has reduced demand for drivers, but the fundamentals of why we had a driver shortage (demographics, age, gender, lifestyle issues, etc.) did not disappear.

While COVID-19 eased this situation for now, it is aggravating it in the future. At of the end of May, many Department of Motor Vehicle offices remained closed or had significantly restricted services which limited the availability of driving tests for commercial driver's license (CDL) candidates to take. As a result the pipeline of incoming drivers that the trucking industry depends upon has shrunk.

To compound things, the way training academies train drivers has changed, too. Along with the use of masks, the CDC requires that social distancing be employed, which limits the number of students a teacher can have in a truck at one time.

Approximately 300,000 to 480,000 people on average obtain CDLs in the U.S. each year. Of these, some drive school buses or motorcoaches or hold a CDL as an added safety credential.

However, it is estimated that the number of people obtaining CDLs this year will drop by at least 40%. As a result, the market for truck drivers is expected to tighten up later this year once the economy regains momentum. When it does, the driver shortage may be worse than before.

With nearly everyone locked down due to the pandemic, one area that is booming is online shopping, including groceries.

Amazon.com reported $75.5 billion in first-quarter sales, up 26% from a year ago. It hired around 175,000 warehouse workers during the March-April time frame. It's using its profits of $4 billion on personal protective equipment, enhanced cleaning of facilities, social distancing measures, higher wages for hourly workers and the development of Amazon's COVID-19 testing capabilities.

Peapod Online Grocer L.L.C., an online grocery delivery company, reported 42% growth in online sales in the U.S. during the first quarter as well and raised its target for sales growth for the year to 50% from 30%.

However, deliveries to retail stores in March plunged as consumers stayed home. The National Retail Federation reported revenue at retail stores dropped by 71% to $8.8 billion from $30.3 billion in March last year.

The growth in e-commerce and last-mile deliveries impacted the major auto manufacturers as well. Although the pandemic resulted in huge losses for the car companies, Ford Motor Co. and FCA USA L.L.C.'s Ram Trucks unit saw higher demand for vans used in pickup-and-delivery operations.

For qualifying buyers, dealers offered zero-down interest-free loans for 72 and 84 months. While this uptick in the pickup/delivery market is promising, stay-at-home orders likely will result in an 80% drop from initial vehicle sales forecasts and 2 million to 3.5 million lost vehicle sales this year.

New truck and trailer sales of course took a wallop due to COVID-19. Fleets backed away from prior commitments in rapid reaction to the plunge in business conditions.

In April Class 8 truck orders dropped to the lowest level since 1995 when orders went negative for two months as cancellations exceeded new orders. Only 4,100 net orders were taken this April compared with 14,859 a year earlier. Truck makers were hit with not only customer cancellations but also with supplier shutdowns and temporary closures of their own plants.

However, while truck sales hit bottom in April, May started the recovery with an increase in truck orders to 6,700. While this number is disappointing compared with 10,886 orders a year earlier, it is a sign that things are moving to whatever the new normal is now.

Steps truck manufacturers are taking to ensure social distancing and sanitized facilities to keep their workers safe will result in loss of productivity going forward.

U.S. trailer orders also fell to an all-time low in April after heavy cancellations. The net order volume crashed to 209 as 5,700 new orders were placed, but 5,491 were canceled. This was the lowest order level since 1990. Last year in April net orders were 14,577.

It is forecast that North American trailer production will drop to 110,000 units this year from 325,000 in 2019. While trailer manufacturing capacity was 400,000 units a year, new processes and practices that take into account social distancing and other health safety procedures will most likely reduce that number as well. Overall, new orders for cars, trucks and auto parts shrank 52.8%.

One, and maybe the only, benefit of the pandemic, associated lockdowns and remote work policies is that the lack of vehicles on U.S. highways has drastically increased the productivity of truckers in areas usually plagued with traffic congestion.

Transportation analytics firm INRIX Inc. accumulated data that showed from March 13-20 traffic went from reduced congestion to "free-flow" in the country's 25 largest metropolitan areas.

Chicago and Los Angeles saw afternoon travel speed increase to 74% and 75% above average in one week as the scale of containment expanded. In Atlanta's "Spaghetti Junction" (intersection of I-85 and I-285), rush hour truck speeds typically are under 15 mph due to congestion. But the week after the lockdown began, truck speeds averaged 53 mph.

The U.S. is probably in the midst of its deepest recession in 75 years, when records that tracked the nation's gross domestic product GDP) and the unemployment rate were established.

While we were stunned by the first quarter's GDP decline of 5%, it's looking like we could see a second-quarter drop of 30% to 40%. GDP growth could increase as much as 6% in the third quarter and 9% in the fourth quarter.

However, the damage resulting from the second quarter shutdown of the economy could result in a 15% to 20% drop in annual GDP or a loss of nearly $4 trillion in economic activity from the country's $21.5 trillion it generated in 2019. It will most likely be year-end 2021 before the economy returns to pre-pandemic levels.

In the meantime, fleets are waiting and watching to make sure freight stabilizes. Keep in mind that due to high unemployment, consumer buying power, which spurs freight demand, is vanishing from the economy.

Federal coronavirus relief checks will help curb consumers' losses, but how effective will they be? This whole economic situation is so unprecedented. We have never seen anything like this before, and no one is really certain about what to expect.

Trucking may escape the worst of the recession and be a leader in the recovery because of its essential nature. Fleets will continue to keep the operational changes they have made and make those permanent that they have found reduce costs and streamline operations, such as telecommuting for their office workforce and digital proof-of-delivery processes.

Good health practices and health assessment tools could remain in place for the longer term as well. Hopefully, in a year we will have a clearer picture of what the "new normal" will be. I'm sure it will be different from what we are used to.