I've been doing almost all my non-grocery shopping online as most people have, and since eating out and going to entertainment venues are not options, more money is being spent on goods transported by truck.
As a result, the growth in Gross Domestic Product (GDP) is expected to be 4% this quarter and freight tonnage should grow 6.2%. This contrasts with 2020 when GDP plunged 31.4% in the second quarter only to bounce back in the third quarter with 33% growth and then finish the year with 4% growth in the fourth quarter.
With the economy now being on a more even keel, the trucking industry has returned to pre-pandemic levels in many ways and appears to be more stable as well.
Freight rates have leveled off even though freight loads continue to increase. Spot rates are high and contract rates are up around the same level, so carriers are doing fairly well compared with this time last year.
Driver shortage
However, trucking capacity, which was tight last year, has gotten tighter with many companies having more work than they can handle.
The continuing driver shortage has been exacerbated by the pandemic, which has reduced commercial driver training and licensing, and the new federal Drug and Alcohol Clearinghouse.
It is estimated that there are about 200,000 fewer drivers than there were a year ago. Active truck utilization — defined as the share of all seated Class 8 trucks actively engaged in hauling freight — has recovered only slightly to a bit below 96%.
The pandemic caused it to plunge to as low as 82%, but it is still far below the 100% utilization the industry experienced in 2017 and into 2018. This likely will result in more driver pay increases.
Intermodal traffic is back to pre-pandemic levels and even above that since imports have surged as retailers are rushing to restock inventories that are very low and many of these goods are coming in from overseas. As a result we now have record levels of import activity, but the pandemic has hit port laborers hard and resulted in slowdowns at several large ports and long backlogs to unload ships and load goods onto trucks. Consequently, container ships are being anchored off shore awaiting slots to unload.
The unemployment rate skyrocketed to 14.7% in April 2020 from 3.5% in February, prior to the pandemic lockdowns. At the end of January 2021 the Labor Department reported that the unemployment rate was 6.3%, however, the Federal Reserve stated that it was actually closer to 10% due to misclassifying people as employed and after accounting for people who have left the labor force since February 2020. So the unemployment situation continues to be problematic and could constrain overall economic growth.
Truck builds
Sales of Class 8 trucks in the U.S. dropped dramatically in April and May last year and for a time weren't available because vehicle makers shut plants temporarily due to the pandemic.
With freight haulers rebounding to better than pre-pandemic levels and carrier profitability expected to rise to record levels this year, fleets are ordering new trucks. About 217,000 Class 8 trucks were ordered in 2020, and forecasts now call for between 250,000 to 280,000 orders this year with production lines almost back to normal.
I say "almost back to normal" since truck builds are being affected by supply constraints. So far semiconductor availability hasn't impacted heavy truck builds to the extent it has automotive builds, but the computer chip shortage is limiting production as they are used in engine and transmission controls among other things.
In addition, numerous other components and parts are in short supply, ranging from steel to tires, and the most critical part can change on a daily basis depending on what gets delivered to the plant. Most shortages are due to the global economic re-engagement that occurred during the pandemic.
Tech advances
One thing that is very different this year is that fleets accelerated technology adoption at lightning speed to overcome the new challenges presented by COVID-19 that provide real-time visibility, remote coaching and workflows, and technology integrations to keep their operations running at full speed. Technology companies reported record growth and profits. So today the trucking industry is better prepared to take on any challenges it might face in 2021.
Last year during March, April and May tire companies suspended manufacturing at most U.S. tire plants to deal with the COVID-19 pandemic. By year-end light and medium tire production had fallen 18.5% and 21%, respectively, to 20.9 million and 11.6 million units, the lowest levels in decades.
The bright spot for tire companies was the strong commercial truck tire market, which recovered above the level of the previous year. Aftermarket shipments of truck tires actually grew last year by 1.2% over 2019 to 19.2 million medium truck units and 32.9 million light truck units, which highlighted the boom in the last-mile delivery business as the country embraced online shopping.
Demand was met by higher imports and stockpiled tires, although inventories were drawn down throughout the year, which created shortages in specific products and/or sizes and a round of price increases near year end. Shortages are not a thing of the past since inventories are not back to pre-pandemic levels yet.
On the OE side, because truck and trailer manufacturers also idled their production facilities, medium truck tire OE shipments were down 27.6% and light truck tire OE shipments dropped 8.7%.
The vaccine
What we have this year that wasn't even imaginable before the COVID-19 pandemic hit is a monumental, logistical effort being conducted right now to transport and distribute the COVID-19 vaccine.
In the four weeks since the first vaccine was administered on Dec. 14, nearly 25 million doses had been shipped according to the Centers for Disease Control and Prevention (CDC). Those numbers now are ramping up rapidly as President Biden has promised 100 million vaccinations in the first 100 days of his presidency.
This unprecedented, massive undertaking requires fleets to transport millions of vaccine doses while keeping them at 94° below zero for the Pfizer Inc. vaccine (a full 50 degrees colder than any other vaccine) and at 4° below zero for the Moderna Inc. vaccine. Due to these frigid requirements, deliveries must be expedited with minimal handoffs by carriers that specialize in temperature-validated transport to minimize loss.
In addition, Pfizer developed specialized pallets that use dry ice to keep vials cold and connected internet-of-things (IoT) sensors to check vial temperatures while in transport. These pallets are placed into Carrier Pods monitored by Sensitech IoT sensors to make sure container refrigeration remains at dry ice conditions.
Sensors within the trailer itself watch reefer temperatures. All of these sensors transmit information during transport. This enables fleets to monitor and adjust temperature in real time to ensure temperatures are compliant during transport. If temperatures start to climb, the shipment can be rerouted to prevent loss of the vaccine.
The thing that makes this effort so amazing is that it is happening at a time when capacity constraints are high as businesses restock depleted inventories, the driver shortage has a stranglehold on trucking, and the supply chain is the most stretched that it has ever been. And taking capacity from pharmaceutical logistics fleets puts additional pressure on all trucking fleets.
FedEx and UPS were first contracted by vaccine manufacturers for transport with FedEx taking the western part of the country and UPS taking the east. But with this undertaking being so enormous, refrigerated truckload fleets such as Boyle Transportation and CRST joined the mission as well.
These fleets had to develop transport strategies that address mechanical breakdowns, temperature drops, utilize team drivers to keep trucks moving, security escorts to protect against cargo loss, and partner with their truck OEMs to keep trucks moving when hauling vaccines.
In addition, distribution and manufacturing have to work together with these fleets to keep things running smoothly. Customers and receivers know exactly when vaccine will arrive and can plan to expeditiously get it unloaded and on its way into the arms of the public.
It is estimated that there will be at least 857 temperature-controlled trucks leaving Pfizer and Moderna manufacturing facilities or distribution centers each month during 2021 and that's just the first two vaccines approved. The CDC is evaluating more candidates even as you read this.
Things are certainly different from a year ago. Some things are better, some are worse, and certainly challenges remain for trucking and the commercial truck tire market. But trucking has risen to the challenge of keeping America moving during the pandemic this past year and tire companies and commercial dealers have worked hard to keep truckers rolling. Hopefully by this time next year, the pandemic will simply be a bad memory and I can wear lipstick again.
Peggy can be reached via e-mail at [email protected]. Her previous columns are available at www.tirebusiness.com
