COVID-19 hits entire transportation sector
April 13, 2020
You know we’re in challenging times when Staples closes over 200 stores and announces it’s going to stop paying rent for most of the 1,600 stores left. Retail is taking a big hit in the COVID-19 pandemic.
Transportation was doing better, at least for a while.
Trucking got a break of sorts when people went on a buying and hoarding binge, clearing store shelves of toilet paper, paper towels, disinfectants, and pasta – except for lasagna. But now it seems trucking will be sharing hard times with the rest of the transportation sector, where some modes are doing better than others.
Airfreight is busy even as the passenger airline industry operates fewer flights with even fewer passengers because of COVID-19.
According to Forbes, airlines worldwide are on the hook for $35 billion in unused passenger ticket refunds the companies are trying to wriggle out of paying. Many of those refunds are for thousands of flights that were canceled. The refund issue won’t matter much for the airlines industry experts say will file for bankruptcy soon.
But here’s the thing: cargo space on regular passenger flights typically carries almost half of all air freight. All those canceled flights represent a massive loss of cargo capacity. So airfreight rates are healthy even if the world isn’t. In fact, medical supply shipments account for much capacity – including FEMA’s Project Air Bridge, now underway flying essential masks, gloves, gowns, and ventilators from China to the U.S. Meanwhile, cargo-only planes are in such high demand that some freight is moving in cargo holds on empty passenger planes and sometimes in passenger cabins.
Sea carriers saw a surge when the China-U.S. trade war and shipments from China resumed with a vengeance in December.
Then the coronavirus hit, U.S. retailers and others canceled orders, and volume shrank. Big carriers like Maersk and Cosco are busy blanking sailings – their term for cutting capacity. Carriers are trying hard to keep rates from falling. A price war could have catastrophic and lasting effects. Industry experts say that lingering financial impacts of the Great Recession of 2007-09 eventually caused the sudden collapse of Hanjin Shipping in 2016, leaving ships and crews stranded at sea around the world.
Meanwhile, at least some of the containers already unloaded at ports in the U.S. and Europe have nowhere go. Retailers whose outlets are closed have stores and warehouses full of goods they can’t move. They’re not picking up or accepting more containers consigned to them. As a result, containers of previously ordered goods are piling up, choking ports and filling nearby real estate worldwide. It’s so bad in the Philippines that congestion is threating to close the Port of Manila.
The impact has been more muted on the rails, where freight levels are sinking – though not as dramatically as in trucking and sea shipping. Railway Age reports that volumes for the first week in April are down 6.7% from the same period last year. Not bad. But in one industry the decline was steep. Very steep. In that same comparison, their automotive business – largely cars and car parts – plunged by more than 80%. With car and truck production all but shut down in the U.S., the automotive industry has virtually seized up. Land Line’s ambassador-at-large Jon Osburn noted that car carriers have become a rare sight on the highways. The last one he saw, Jon said, was empty.
Trucking is facing falling volumes too, but I don’t have to tell you that.
How badly and for how long? There can’t be an answer as the impact of so many business closings at once still surges through the rest of the economy.
Freight volume isn’t the only effect the coronavirus has on our industry. Big logistics companies are trying to get out of what are suddenly unprofitable contracts by claiming “force majeure,” Latin for what is more commonly referred to as “act of God.” FreightWaves reported CEVA Logistics and DHL Global Forwarding have invoked the policy. CEVA “reserves the right to modify all or part of its services, to change its working procedures and any previously agreed rates and prices.” The policy includes trucking, CEVA noted. What that will mean for rates as other big brokers take similar action is hard to predict.
FreightWaves also reported insurance companies are sweating anticipated claims due to the coronavirus pandemic. One insurance executive said many business policies protect against “business interruption.” They cover losses to fire, tornados and the like, he said, adding, “in most cases pandemics or epidemics are not covered.” But some suits against insurers have already been filed, he said. In any case, profits will fall and insurance companies will be more careful about who they insure – not good news for many carriers already dealing with high and rising premiums.
In a less worrisome news, driverless trucks may be pushed even further into an already hazy future because of COVID-19.
Economists predict the losses incurred by vehicle makers will mean cuts to self-driving programs – probably deep cuts that will slow development. At the same time, other driverless vehicle developers – especially startups – will see investors less willing to part with cash as potential markets the technology recede further into the haziness. In March, investors backed away from driverless truck developer Starsky Robotics, which closed down for good as the pandemic spread.
Development hasn’t stopped altogether. The Swedish company Einride just released a video showing its driverless truck – what the company calls a pod – moving around a warehouse yard and backing into a door. The “pod” is operated remotely from a computer display. A company named Nuro has been authorized by the California DMV to operate on certain streets in select Silicon Valley towns delivering for local food markets and retailers. The small Nuro vehicles are restricted to 25 mph. Both Einride and Nuro vehicles are totally driverless. Neither even has a cab for a driver. But even with permission granted, Nuro has not launched because of the pandemic, the company said.
And there’s bad news for Fred Smith.
Transport Topics reported Smith, founder, chairman, president, and CEO of Memphis, Tenn.-based FedEx, has taken a 91% pay cut. He’ll have to tighten his belt as his monthly pay drops from $115,402 to a mere $10,728.