Has Trucking Already Recovered from the Covid-19 Recession?
While many – perhaps most – sectors of the economy are suffering from the pandemic, the transportation industry is doing surprisingly well. The best way to sum up current trends is that while service industries are hurting, demand for goods is not only holding steady but growing. This is good for trucking because services can’t really be shipped, but goods must be moved.
“The recession is likely over,” says Bob Costello, the American Trucking Associations’ chief economist. With all the main indicators trending up, Costello goes on, “The question then becomes, are we headed on a track where we don’t fall back into a double-dip? As of now, I think that’s the case.”
If a second dip does occur, however, it would have dramatically different impacts across various industries. Overall, the ATA economist foresees growth in the GDP of 2.5% in the fourth quarter of 2020. That’s after a 5% drop in Q1, a devastating 31.7% drop in Q2, and a somewhat reassuring jump of possibly 30% in Q3. Next year, Costello anticipates growth of 3.3% in the first quarter, close to the country’s long-term average growth rate.
Without a solution to the pandemic, though, bars, restaurants, event venues, hotels, airlines—any sector focusing on services or experiences—are all going to continue struggling. At the same time, new home construction, online retail, even grocery stores will likely continue to see higher demand. And that’s good for the trucking industry.
While freight haulers are often the hardest hit by economic downturns, things are different this time around. “Ironically, this time — despite being the worst drop in recession history, in the shortest amount of time — the parts of the economy that are performing better happen to be our customers in many respects, certainly on the consumer side,” Costello says.
Good Signs for Trucking
Signs of an economic recovery include orders for new trucks. According to FTR and ACT research, orders for Class 8 trucks, a leading economic indicator, spiked in September to numbers not seen since October of 2018, topping out at 32,000. (The recovery took just 4 months, compared to the 48-month recovery time after the 2001 recession.) Forecasts have the number of orders remaining within the 20,000 to 30,000 range through Q4 of this year.
“Retail sales figures for online purchases of goods have been setting records during the pandemic,” explains Paul Bingham, director of transportation consulting at IHS Markit Economics. A survey of retail merchants has found that 74% expect a major surge in demand this holiday season, and 56% believe the spike will be either on par with or larger than the 2019 season.
“When we go out and spend money on a service, sure there’s truck freight involved,” Costello says, “but the services are a much less truck-intensive industry as compared with goods. When we go out to buy a good, there’s a lot of truck movements associated with that even on an imported good. So that’s where we have benefited this time.” Online sales are expected to grow 20% by year’s end and continue growing throughout 2021. This growth seems to be taking place alongside a plateauing of offline sales that may lead to a decline of as much as 5% before the year is out.
Roadblocks to Recovery
A possible impediment to the growth in online sales is unemployment. The pandemic has left countless people out of work, and with political gridlock over economic stimulus persisting into the fall, the prospect for more layoffs looms menacingly over any economic forecast.
“It is the elephant in the room,” according to Todd Tranausky, vice president of rail and intermodal at FTR Transportation Intelligence. “The longer unemployment stays stubbornly high, the higher that risk gets, particularly with business investment and spending on the sidelines at the moment. It’s up to the U.S. consumer to drive that demand.”
But Tranausky is mostly optimistic. “We’ve seen a pretty robust market since Aug. 1. You not only have the holiday hold-through, but you also have retailers trying to restock their inventories. You have both of these demand levers trying to fill at the same time. Given COVID-19 and given that people can’t really go out this holiday season, we really expect to see less spending on services and more money on goods.”
One of the downsides to the strength of demand in the transportation industry is that it’s reintroduced the driver shortage issue that had been plaguing fleets since long before the pandemic took hold. The ATA estimated that the industry was short 60,000 drivers who’d been lost to retirement and the slow pace of recruitment. Now that goods are moving again, fleets are struggling to get bodies behind the wheels. Indeed, many trucking outfits are responding to the need to retain and recruit drivers by increasing pay.
Along with the driver shortage, the trucking industry’s issue with predatory litigation is already rearing its ugly head again too. In the years from 2010 to 2018, the annual increase in the size of verdicts against fleets was 51.7% – this while the general rate of inflation was only 2.9%. This is one of the reasons why insurance coverage per mile has increased by 17% since 2013. The added cost burden put 795 trucking companies out of business in 2019.
Lest you think the feelings of gratitude toward truckers as they kept on the roads during the worst of the pandemic (so far) might ameliorate the litigation problem, a jury just this month handed down a $411 million verdict against a single-truck operation in Florida. The trial was conducted over Zoom. While the accident at the center of the dispute occurred back in 2018, the dollar amount was the highest ever awarded in a case against a single company. That probably doesn’t bode well for trucking outfits trying to defend themselves in the future.
It’s hard to believe this pandemic began less than a year ago. With the number of new cases going up again in several states as we head into the fall, we can be sure more surprises are in store for us over the horizon. But the more we all try to live our lives at home and reduce possible exposure to Covid-19, the farther our goods and supplies are going to have to travel to get to us. As far as anyone can tell, that’s good news for truckers – just as long as we can make sure they’re safe and healthy.
Also check out:
Follow us on:
You can also sign up for our newsletter so you never miss a post. Just scroll down to the form in the footer.