Effects of COVID-19 downturn on the truckload rates are murky

June 2020

Greg Grisolano

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Because of the breadth of it, the coronavirus pandemic has hit supply chains like no other disruptive event in memory.

Hurricanes, snowstorms or other weather-related events are usually confined to a specific region. Events such as the Great Recession hit markets nationally and internationally but it happened over several years. COVID-19, however, struck quickly, disrupting markets abruptly, and across the nation, continent and globe.

Consumer panic buying in March meant strong markets for carriers and hero time for drivers.

“March was great. It was a boom month for carriers. April was bad,” said Ken Adamo, chief of analytics at DAT Solutions, Beaverton, Ore., a freight load board and the sponsor of OOIDA’s MembersEdge load board.

Each month was “unprecedented,” he said, with each month being unprecedented on the opposite end of the scale.

It was a boom time, in a way, but, as stay-at-home orders forced restaurants to close, commercial foodservice traffic dropped sharply. Reefer rates fell to the lowest level in five years.

“Pre-COVID, we would have expected March to be a pivot point for prices to start going up,” Adamo said.

Spring produce harvests should push reefer rates higher, depending on if shutdowns ease enough in May, Adamo said. Produce shipments in early May were beginning to pick up.

Foodservice may not rebound as quickly as might be hoped. Restaurants that reopen may do so at limited capacity, perhaps by seating people at every other table or something similar. If restaurants have less ability to serve meals, foodservice suppliers may still have too much product. Their difficulty in switching to retail outlets may mean product is dumped and not shipped.

Flatbed traffic has been off too.

“Between oil and the lack of commercial building, the flatbed market is just on its head right now,” Adamo said.

Volumes on high-volume lanes were neutral in early May, when construction, energy, manufacturing and other flatbed markets normally would have been surging.

The coronavirus pandemic gutted the oil market. Oil prices began dropping in January. In late April oil future prices were trading at negative prices for the first time ever because available storage had filled up.

With businesses idled, there were too many trucks for the number of loads available. The lack of imports has desiccated the dry van market.

“In April, we saw a couple of weeks when the truck-to-load ratio was less than 1. That hasn’t happened since 2016,” Adamo said.

Low oil prices add to the downward pressures on the freight markets not only in freight volume tied to energy production but also in decreasing diesel fuel cost and surcharges paid to drivers. Fuel surcharges lag real-time diesel fuel prices, so truckers may see shippers slow to increase the surcharge when the economy rebounds. That means they could be caught with less surcharge income than needed to pay for filling their fuel tanks.

What the long-term effects of the coronavirus will be won’t be known for a while. The coronavirus crisis might have been expected to weed out carriers. By the time March COVID-19 madness hit, though, the industry already had been weeding out carriers for 18 months, Adamo said.

“The carriers that were able to weather March and April, they will be OK,” he said.

OOIDA Foundation sees historic low rates

Data collected by the OOIDA Foundation corroborates much of the information from DAT’s Adamo, said Andrew King, research analyst.

“Rates are still at historic lows for many segments of the industry and across many lanes due to overcapacity,” King reported in early May. “Rejection rates continue to stay around 2.5% overall, meaning that shippers are not experiencing any difficulty in finding carriers to haul their freight, hence the low rates.”

King said he and his colleagues at the OOIDA Foundation expect a long haul until the economy recovers.

“We should expect the low freight rates to continue until more states begin to open businesses. The entire supply chain has been disrupted from shipper to consumer,” King said. “Imports are declining and warehouses, port terminals, and inland depots continue to fill up as retail outlets, manufacturing, and industrial sectors remain shuttered due to stay-at-home orders and decreased consumer demand.” LL

Greg Grisolano

Greg Grisolano joined Land Line in 2013. He was formerly a reporter for the Joplin Globe. He brings business writing and photography skills to Land Line, and has a passion for finding and telling stories about the people who make up the trucking industry.