The Impact
The impact of the coronavirus on shipping most likely will be mixed as e-commerce depends on transportation to be effective. Some industries such as food, beauty items, and household supplies retailers could experience increases while others might experience declines. Either way, there will be disruptions to the supply chain. If you have placed an order for anything lately, you already know about the massive delays in receiving your order. For example, Amazon has informed its customers to expect delays with the increased amount of orders, and that they will be concentrating on food and household goods orders first.
With delivery becoming an even more important way to get food and household items, there may be some changes to the way they are distributed, and thus affect the supply chain and shipping process. A more concentrated and centralized distribution system will impact the current shipping process for these goods.
Lower Volume
As Americans stocked up on groceries and household necessities in March, freight levels remained strong. However, April tonnage was much softer as many businesses remained shuttered. The excess capacity issues became glaringly apparent.
Volume and rates have slowed considerably to the point that truckers wonder whether the next load will cover costs. Norita Taylor, spokesperson for the Owner-Operator Independent Drivers Association states: I’ve been hearing from members that people are being offered things for literally less money than it takes to drive the truck. It would cost them to take that load.” This scenario is echoed by many industry insiders.
Now the global supply chain has slowed with less production in the U.S. and around the world. Even for companies that produce their products, some of their raw materials or supplies are dependent on other countries. According to a Digital Commerce 360 March 2020 survey, 44% of retailers expect product delays due to the COVID-19 outbreak, and 40% expect inventory shortages. As these delays and reductions persist, the freight market will feel the effects.
Small Carriers are Hurting
When the stay-at-home orders were put into place across most of the country in March, the level of freight took a severe downfall. Spot rates continue to fall for most modes of trucking including vans, reefers, and flatbeds. Load-to-truck ratios are also declining, indicating that there is no rebound in the short-term. This means that smaller carriers are suffering in this market and some will not survive while the country waits for restrictions to be lifted.
It is possible then that the freight market will experience tighter capacity as carriers go out of business. At that point, with demand higher than supply, rates could start to rise. The upcoming produce season, for which small carriers provide capacity, might be a saving grace as it comes at just the right time.
Getting Back to Business as Usual
Forecasting models indicate that spot rates should level off in May, in part due to the start of the produce season. However, it will take months, if not years, for the economy to recover, depending on how many more outbreaks of the virus there are. This uncertainly does make it difficult to predict what will happen in the freight industry, as in any other industry.
Retailers are also not very confident in what the future holds. In the same 360 Commerce survey, many retailers have a negative outlook for 2020, with 36% of those surveyed saying their e-commerce business will be down due to the outbreak This will of course result in a drastic decrease in ground transportation.
A potential recession will influence how much rates rise in the next few quarters. The next two or three quarters could be incredibly challenging for the spot market. If truckload rates rise, shippers might switch to a different transportation mode. However, smart policies and regulations will become increasingly important to help to mitigate some of the negative changes that might be in store for the coming months.
Your Trusted Partner
At Red Arrow Logistics, we provide expertise and white glove customer service with fast-growing, complex, and high-value supply chains. As the next-generation model of logistics companies, we offer tailored transportation and logistics solutions — from single shipments to complex over-dimensional and international orders.
Red Arrow offers the scale and scope of services including air, ocean, and ground transportation to meet the budget and schedule requirements of the largest and smallest companies alike. If we can be of assistance, please email us at [email protected] or give us a call at 425-747-7914.
