How is COVID-19 Impacting Freight Volumes?

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As the continued influence of the novel strain of coronavirus (COVID-19) slows economic activity for some businesses, others are facing very different challenges. Small businesses, the restaurant industry, tourism, and travel are taking massive hits as social distancing protocols and mask mandates limit capacity or force shutdowns completely and many U.S. citizens are opting to stay home to prevent further spread.

For the commercial transport industry, these changes have manifested differently across freight verticals. While durable goods and other non-essential items have been significantly suppressed, a COVID-19 economy translates into an influx in other industries. Products that enable self-sufficiency from the comforts of home and items protect essential workers have increased significantly. Breakthrough’s data supports over 60,000 daily freight movements, supports this assertion.

In March and April consumers emptied store shelves to stock up on essentials, like toilet paper, health products, cleaning supplies, food products, and other consumer packaged goods. As a result, freight demand for consumer packaged goods, food & beverage, paper & packaging, and retail goods spiked and have retained most of their strength throughout the Breakthrough network. Freight demand for these nondurable goods rose nearly 23 percent at its peak compared to the prior year’s level and have remained above 2019 levels ever since.

For these sectors, this behavior surpassed 2018 levels when the U.S. was economically thriving. For others, primarily nondurable goods, volumes dipped significantly. This dip reflects a shift in consumer purchasing patterns that stem from a fear of an unknown economic future. This stark decrease in volume will inherently alter the dynamics of these manufacturers’, retailers, and shippers’ freight procurement strategies.

When much of the commentary in the marketplace is concerned about plummeting stock prices and slowed economic activity, what can shippers expect for their supply chain?

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

Months after COVID-19’s initial impact, uncertainty across the globe continues, with an end of the virus nowhere in sight. The forward-buying consumer behaviors that manifested in freight volume surges early have receded, though remain above typical levels.

As the variability in consumer demand remains in flux, each link across a good’s journey to the store shelf or end-user becomes more unpredictable, and transportation is not immune to this phenomenon. This uncertainty has lead to a myriad of challenges in forecasting accuracies and planning in times of disruption. For shippers that procure capacity based on an annual RFP cadence, this ongoing uncertainty has left those strategies freight contracts in disarray.

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

The most successful shippers will navigate the challenges of meeting volume requirements and procuring capacity with an agile and data-based strategy that reimagines how we think about freight contracts.

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

It is important to keep the uniqueness of the COVID-19 outbreak at the forefront of analyses of current freight trends. Demand for all goods could remain weaker than expected for a longer period than would be typical under normal recessionary circumstances. As mass layoffs continue and jobless claims set record highs in response to slowing economic conditions, we could expect consumer spending to remain uncharacteristically low in the face of ongoing uncertainty.

That being said, we have seen freight demand shift at different rates for both nondurables and durable goods.

 Nondurable Goods and the Bullwhip Effect

The initial increase in freight demand seen through mid-March to early April reflects the rush to stock up. Freight demand for non-discretionary goods experienced a bullwhip effect—where the initial surge was reflected in an equal and opposite decrease to immediately follow.  After the surge hit its peak, all industries saw a decrease in freight demand. Once consumers secured their stockpiles, they need to purchase more goods dissipated. The degree and duration of this bullwhip effect, for the most part, echoed the deviation from the norm we saw on the front end of the pandemic.

After the bullwhip effect concluded, it was expected that consumers would utilize most of its safety stock before repurchasing. However, food and beverage, consumer packaged goods, and retail industries all experienced noteworthy strength even after the surge was over. This increased freight demand proved that consumers continued to buy nondiscretionary goods even as economic hardships persist.

Suppressed Demand For Durable Goods Freight

While freight demand for nondurable goods spiked due to consumers stockpiling essential household goods, freight demand for durable goods responded oppositely.  In the Breakthrough network, durable goods did not have an initial spike but saw a decrease of nearly 42 percent year-over-year, which can be seen in the deep fall off of the red line in the chart above.

This behavior is common in durable goods space when the economy enters a downturn.  With mass layoffs and furloughs, consumers are limiting their spending on big-ticket items like appliances and home improvement.  This is also reflected in the uptick in personal savings rates.

The uncertainty and the sharp reaction to the pandemic seen in the labor market pushed freight demand for durables into a deeper fall, before starting its profound recovery.

The recovery in the durable goods sectors within the Breakthrough network was largely due to the strong recovery seen in the automotive sector and the housing market.  As these industries recovered in July, so did freight demand supporting the supply chain of those industries.  Some of the strongest players in this space were automotive parts, construction materials, and other durable goods that are typically purchased to maintain and renovate a house.

Learn more about consumer behavior and the relationship between durable and nondurable goods in an economic downturn here.

Prepare Your Network for an Ebb and Flow in Coming Months

Looking ahead to the next six months, we expect freight demand to continue to be robust for non-discretionary goods and durables will continue its gradual rise in specific sectors.  Our perspective continues to include a gradual improvement in economic activity across regional economies, yet progress for consumer activity through peak season for U.S. imports and the beginning of the next school year remains uncertain.

The persistence of COVID-19 will likely continue to be the largest piece of uncertainty and volatility in a shipper’s supply chain.  Recent virus containment orders, like those given within the states of California and Washington, shut-down businesses in hard-hit communities and paused any relaxation of restrictions, respectively. These orders will lead to slower job gains in the coming months.

The recent surge in case counts in the southern U.S. will present headwinds for consumer sentiment and ultimately spending, should lawmakers decide not to extend supplementary unemployment benefits beyond July. If extended, they will conversely assist freight demand. These developments, and their potential impact on consumer spending growth, are capable of creating additional volatility in freight demand.

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.

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