COVID-19 Impacts on Freight Volumes: How to plan for the Ebb and Flow

Email Share on Linkedin

As many businesses are preparing for and experiencing the slow of economic activity following the spread of the novel strain of coronavirus (COVID-19) and its prescribed social distancing, others are facing very different challenges. Small businesses, the restaurant industry, tourism, and travel are taking massive hits as many U.S. citizens are opting to stay home and avoid gathering in groups of 10 or more to prevent further spread.

But that conversely translates to an influx in other industries that enable people to be more self-sufficient from the comforts of their homes. As consumers empty store shelves to stock up on essentials, like toilet paper, health products, cleaning supplies, food products, and other consumer packaged goods freight volumes in these industry sectors are demonstrating a notable uptick.

The chart below highlights that when COVID-19 first struck, freight demand in the Breakthrough Network for paper products and consumer packaged goods spiked.  Freight demand rose roughly 8 percentage points in both industries since the COVID-19 outbreak began and roughly 14 percentage points above last year’s volumes.

Read an in-depth analysis of how both fuel and freight markets are responding to the coronavirus outbreak here

Source: Fuel & Freight Market Update | Ongoing Impacts of COVID-19 & OPEC+ Conflict, Breakthrough

 

For these sectors, this behavior surpassed 2018 levels when the U.S. was economically thriving. When much of the commentary in the marketplace is concerned about plummeting stock prices and slowed economic activity, what can shippers manufacturing and moving essential goods expect for their supply chain?

What does global economic uncertainty mean for your transportation supply chain?

Uncertainty across the globe continues, and for consumers, the end is nowhere in sight. Regardless of how long these forward-buying behaviors endure, there will be consequences for the full supply chain to varying degrees.

As the variability in consumer demand remains in flux, each link across a good’s journey to the store shelf becomes ever-more unpredictable, and transportation is not immune to this phenomenon. This is commonly known as the “bullwhip effect” and it can lead to a myriad of challenges in forecasting accuracies and planning in times of disruption.

Learn how to navigate massive fluctuations in diesel fuel prices, and how your fuel reimbursements are costing you millions in unnecessary costs here

How will Increased Freight Volumes Respond to Normal Conditions Down the Road?

 

In order to understand the future effects of the increased demand shippers are experiencing, we will assume that the end consumer will utilize most of its safety stock before repurchasing. This means that once freight demand returns to normal levels—whenever that may be—we could see an inversely correlated decrease in freight demand.

A fair estimate to make is that the increase in freight volume demand is likely to equally and oppositely decrease from expectations under normal circumstances for each week the increase occurred. Its duration may also echo this pattern, enduring for a similarly equivalent time opposite of the increase. If increased freight volumes in CPG and other essential goods lasts two months, we can conclude that two months of decreased volume is likely to follow once circumstances return to normal accounting for a reasonable standard deviation.

However, considering the uniqueness of the COVID-19 outbreak, demand for these goods could remain weaker than expected for a longer period than is typical. If mass layoffs spike the unemployment rate in response to slowing economic conditions, we could expect consumer spending to remain uncharacteristically low in the face of ongoing uncertainty.

This is important to keep in mind for shippers planning their procurement strategy over the next few months. As capacity tightens in the near-term, it will ebb and flow with the cyclical nature of these behaviors. All other factors held constant; we can plan for a softening market shortly after the virus’ downswing begins.

Prepare Your Network for an Ebb and Flow in Coming Months

Looking ahead, we expect freight demand to continue to stay strong in the short term.  Once the initial panic subsides and/or the outbreak halts U.S. businesses, we could see a lull in freight demand in all industries.

Uncertainty is the key tenet of most reporting related to freight and COVID-19, but when held against market fundamentals and accurate, complete data the outlook becomes relatively clearer.

Staying in tune with changes in the market is in the best interest of your transportation network, and shippers who position themselves to quickly adapt with agility will ensure they are keeping pace with and surpassing their competitors.