July 7, 2020 (Courtesy of The Jacksonville Business Journal)
There’s no question that the freight market has been recovering as states begin to open up their economies and demand slowly rise.
However, the industry hasn’t reached pre-Covid-19 levels, and it’s unclear when or if it will, said Nöel Perry, principal at Transport Futures, a consulting firm focused on North American heavy freight.
While new surge in Covid-19 cases could throw a wrench in the recovery, Perry said state leaders may be hard-pressed to reimpose restrictions.
Rates are increasing, capacity utilization is up and while nothing is quite at its original levels, Perry said that the market is definitely increasing.
“The only question is, to what extent has the trauma of this whole thing weakened the economy, to the point that it won’t completely recover?” Perry said.
Recovery makes sense because this was not a recession in the traditional sense, Perry said: While some consumers were constrained for financial reasons, the drop in demand also stemmed from people not making purchases because they weren’t allowed to. Now that people can go out and shop or eat a restaurant, Perry said that activity will spur new surges for the freight market.
Still, there was quite of bit of disruption to international supply chains and production, as well as to transportation and trucking companies themselves. Some companies may have been forced to cut drivers and take other measures that could make it difficult to hop on freight as it comes back.
Another factor that can make it difficult for transportation companies to capitalize on the economy’s reopening is its fragmented nature. States and even cities vary in their regulations, which makes transportation companies less efficient because they can’t rely on normal trips.
“Trucking is historically based on efficient trip cycles, and when you take out a leg of that trip cycle or change it completely, it takes quite a bit of time for the market to readjust,” Perry said.When rates collapse, productivity declines and demand shrinks, it creates a difficult environment for trucks to readjust to, even when those things begin to climb upwards again. It’s a subtle process for both shippers and truckers to find adequate capacity and the right prices.
“Normally, it would be a bigger problem than it is right now, and that’s because normally you’re comparing a disrupted market with a stable market,” Perry said. “But now we are comparing a partially disrupted market to a completely disrupted market.”
Transportation companies that are struggling with what to do next should be in contact with furloughed or laid off drivers, Perry said, preparing them to increase their capacity as the flow of goods increases. They also need to make sure they are managing pricing properly.
“If things get tight, they should raise their prices. But truckers are very shy when it comes to pricing,” Perry said.
Perry said he’s watching the demand for housing and for machinery because they use flatbeds and are integrated into the market. He expects more shipping will resume as demand continues to trend upwards, with the rebound leveling off toward the end of August.