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July 26, 2021
How Has the Coronavirus Vaccine Affected the Transportation Supply Chain?

Injecting Consumer Behavior and Pandemic Predictions into Transportation Forecasts

As we approach the second half of 2021 and pandemic expectations gradually unwind, consumers will do some unwinding of their own. From movie-going to passenger mobility, many of the hobbies and habits that the pandemic put on pause have flooded back into the market and our daily lives.

This shift in consumer behavior has massive implications for transportation professionals. While some behavioral change will be sticky—like the convenient shopping solutions we saw via eCommerce, curbside pickup, and home delivery—others will shift toward their pre-pandemic norms. The extent of behavioral change across consumers, how quickly it occurs, and ultimately the consequences for transportation are reasons to pay close attention to potential inflection points in the fight against COVID-19.

Read an analysis of the ways the coronavirus pandemic has impacted the freight market, here

The U.S. and Global Vaccination Rates

The U.S. effort to expedite the COVID-19 vaccine rollout—Operation Warp Speed—was rolled out under the Trump Administration and continues under a new set of policy objectives made by the Biden Administration. Outside of the U.S., efforts towards vaccination struggled to ramp up at first, but are starting to show promise.

The most recent CDC guidelines are incentivizing increased vaccinations across the board and consumers’ willingness to shift back to pre-pandemic habits. The updated guidelines state that fully vaccinated individuals can resume pre-pandemic activities without requiring a mask or social distancing. This news gives consumers confidence to spend more on travel and entertainment—which is critical for energy and freight forecasts. 

“If you are fully vaccinated, you can resume activities that you did prior to the pandemic…without wearing a mask or physically distancing…”

~ The Centers for Disease Control and Prevention (CDC)

Key Takeaway Consumers are rapidly ramping up their spending on services, while holding goods spending strong. It is likely this trend will continue through the end of the year.

How will the vaccination rate impact transportation energy costs in 2021?

Since Q3 2020, elevated demand for goods helped diesel consumption thrive. Although gasoline and jet fuel demand suffered from greatly reduced business and leisure travel through 2020 and into 2021, it has rebounded strongly in recent months following the vaccine rollout and updated guidance from the CDC.

Diesel demand caught up to 2019 levels in December 2020 and remained closely in line with 2019 demand figures through the first half of 2021.  Gasoline and jet fuel sales, however, continue to be much lower than 2019 levels. Gasoline sales finished the second quarter of 2021 at levels that were about 8 percent lower than 2019, while jet fuel sales remained 30 percent lower.

Read about the three things we think shippers need to know about fuel forecasting in 2021 on our blog

Oil prices trended up in the first half of 2021 thanks to both transport fuel demand growth and big changes in supply-side dynamics. Personal mobility and economic activity will improve for more countries as vaccination becomes more widespread supporting strong demand growth. Production quotas put in place by OPEC+ and a reluctance to increase supply across non-OPEC+ nations will keep supply tight. Should producers maintain their disciplined approach to support a tight market, crude oil prices will experience upward price pressure through the remainder of summer and into autumn.

More recently, the fuel demand has returned for passenger transportation, particularly gasoline consumption, which encouraged refinery utilization to increase toward pre-pandemic levels during June. As refiners produce more gasoline, the refining process also puts more diesel into the market. Increasing diesel supplies weigh down diesel prices. This development and inverse correlation between refinery use and diesel refinery costs and margins shows up in the chart below. These dynamics occur routinely because refinery utilization annually ratchets up for the summer driving season in response to greater gasoline demand and its seasonally higher price premium.

Refinery utilization rates surpassed 90% in the U.S. in June. This was the first time refineries were used at a rate of at least 90 percent since January, 2020.

While higher refinery utilization can offer some downward price pressure onto diesel as a unique transportation commodity, the effect of returning passenger vehicle demand is likely to support higher crude oil prices.

Key Takeaway: The net consequences of U.S. vaccination lead us to believe transportation energy prices will climb during our 2021 to 2022 forecast time horizon.

How will the vaccination rate impact transportation procurement costs in 2021?

Vaccines and the newly stated CDC guidance offer the clearest path toward pre-pandemic economic activity. That has led to the start of a shift in consumer spending from goods to services, similar to purchasing patterns from before the pandemic. Historically, consumers in the U.S. spend around 2/3 of their income on services, like travel, entertainment, and otherwise.

We take a deep dive into consumers’ shifting spending habits throughout the pandemic. Read the detailed analysis here.

A shift in spending toward services, even gradually, has affected freight demand. First, consumers shifting their wallet share to services may consume fewer goods, decreasing freight demand. We have seen this occur in May and June already, and expect it to continue to manifest throughout the summer months.  

The chart below shows the path each consumer spending sector took in comparison to the 5-year annualized growth rate.  This shows what would have been expected if the pandemic did not occur. 

Freight demand soared for many industries during 2020 because consumers shifted their wallet share from spending on services to goods. In fact, freight demand soared despite total consumption in the U.S. remaining nearly six percent lower through 2020 (by our estimates) than where it otherwise may have trended if the pandemic did not occur. Service spending finished 2020 about 9 percent below its potential (see the chart above), while total goods spending increased for both nondurable and durable goods.

Consumer behavior will be influenced by factors like the elevated personal savings rate and a low-interest-rate environment. We are likely in a transition period of high consumer spending for services and goods. So, while we anticipate consumers will continue to shift spending in some capacity from goods to services, the degree of total spending in coming quarters may vary.

Key Takeaway: The net consequences of U.S. vaccination rates lead us to believe freight rates are likely to plateau as vaccine distribution continues through 2021.

Evolve Your Forecasting in Volatile Markets

The amount of data and information discussed during a normal business cycle can be overwhelming, so when disruption occurs, and cycles become volatile, it is beneficial to elevate forecasting principles. Whether looking at the energy consumed or the volumes moved across a transportation network, focusing on market fundamentals, drawing comparisons with past markets, and challenging perspectives through diverse perspectives will enable organizations to cut through the noise and keep budgets connected with market dynamics.

For details on the factors shippers should keep in mind related to the future of linehaul rates in 2021, read our analysis here.

Matt Snider

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