While some segments of the trucking and e-commerce industries experienced a surge in business as the coronavirus pandemic reached U.S. shores, the economic malaise is starting to set in.
Analysts say consumers have stocked their pantries with most of what they needed as they started to comply with social distancing and shelter-in-place orders. A Morgan Stanley survey of more than 400 transportation carriers, shippers and brokers found that 100 percent were affected by the economic fallout of turning off large segments of the U.S. economy.
“With U.S. retailers and cargo owners scaling back orders, volumes are soft even though factories in China are beginning to produce more. Amidst this public health crisis, there will be uncertain months ahead in the global supply chain,” said Gene Seroka, Executive Director of the Port of Los Angeles.
ACT Research also noted that economic fallout is catching up with the freight industry.
“We have further lowered our freight expectations since the mid-month update a couple of weeks ago, as the complexity of the manufacturing restart becomes clearer. The cliff event is here and now,” Tim Denoyer, ACT Research’s Vice President and Senior Analyst, said.
The firm expects spot shipping rates to drop more than 20 percent this month and next from March.
“The pandemic has caused breakdowns in the economy not seen before in our lifetimes. Freight has adapted to past new normals and emerged steady on a per capita basis, and likely will again, eventually, but there are some extraordinary swings coming in the next 12-18 months,” Denoyer said.
FTR Transportation Intelligence forecasts that the GDP Goods Transport Sector will drop nearly 10 percent in the second quarter from the first quarter. If the same rate continued for the rest of this year the sector decline would reach 45 percent. Falling trade metrics, plunging auto sales, lower industrial production and sagging housing starts all will affect the freight demand, the research firm said.
Moreover, the $2.3 trillion federal rescue plan won’t help much in the second quarter because it is difficult to create additional economic activity during the time then nation is trying to contain COVID-19.
But the cash infusion could set the stage for a somewhat stronger recovery in the third quarter, FTR said.
That’s also the thinking of Morgan Stanley freight transportation analyst Ravi Shanker.
The response by freight industry executives in the Morgan Stanley survey reflected an expectation that the freight market “is moving toward peak disruption and could be poised for a V-shape recovery even if the broader economy settles into a U or L-shaped recovery,” Shanker said.
V-shaped slumps are characterized by a steep decline and rapid recovery. The U curve has a wide trough. The L-shape is a recession that is extended for years. A good example is what happened to Greece when it defaulted on debt.
The Morgan Stanley survey respondents believe the economic fallout for the freight industry will linger for at least a year.
Still, there may be some silver linings.
One potential outcome of COVID-19 disruptions is overall better shipper behavior as shippers now realize that carriers are a strategic resource, not a transactional one, Shanker said.
This article was originally posted by Trucks.com