Throughout the end of Q1 and into Q2 the term “unprecedented” seems to be the buzzword of the day when talking about transport and logistics trends. Every corporate email, blog post, report, and headline seems to heavily lean on this language, and despite its fatigue across publications, it remains accurate and relevant to the turbulence of 2020.
To keep pace with the rapid changes and the “new normal” emerging across industries below is a running list of unprecedented 2020 events and record-breaking market behavior that will continue to influence transportation strategies moving forward.
1. OPEC+ agreed to the largest production cut in its 70-year history.
The Organization of Petroleum Exporting Countries (OPEC) and its allies (+) agreed to aggressively reduce crude oil production in an attempt to balance the market and restore prices. OPEC members pledged roughly 6.1 million barrels per day (mmbd), while their additional allies (OPEC+) pledged an additional 3.6 mmbd for a whopping total just shy of 10 mmbd. The cuts will incrementally decrease over time, starting with 9.7 mmbd for May and June, reducing to 7.7 for the rest of 2020 and then enduring at 5.8 until April 2022.
This agreement, however, may change based on market fundamentals and the evolution of COVID-19. Since this originally promised cut, Saudi Arabia has already committed to reducing an extra 1 mmbd on top of their previously agreed quota.
The need to reduce at such a drastic rate comes on the heels of a price war between Saudi Arabia and Russia, historically high U.S. production levels, and exacerbated demand shocks from coronavirus lockdowns. The result was an overwhelming surplus of crude oil supplies that sent crude oil prices careening into the negative.
2. Crude Oil Prices Sunk Below Zero
With that in mind, it is important to give a separate mention to the plunge in crude oil prices experienced on April 20th, 2020. As demand sunk for crude oil and refined products, the excessive production on the supply side tipped the scales of the supply and demand balance leading to a flooded market.
Read more about how the price of crude oil intermingles with its refined product outputs in “What’s In Your Crude Oil Barrel?“
This became particularly problematic for crude oil futures contract holders. Most often, these entities simply buy and sell futures contracts without ever physically having barrels of crude oil in their possession. But this April, when futures contracts were set to expire and the country’s storage and infrastructure was near capacity, futures traders were literally left with millions of barrels they couldn’t sell, store, or move. The result: prices were driven so low they would pay to have oil taken off their hands.
This was additionally reflected in unpalatably low gasoline, jet fuel, and diesel fuel prices.
3. The U.S. reached a new record-high for domestic crude oil production.
Prior to the vast supply-demand imbalance, the U.S. had been on yet another upward swing in crude oil production, ultimately setting its record production level at around 13.1 mmbd. Ever since the shale oil boom in the 2000s, made possible by advancements and use of fracking, U.S. crude oil production has become increasingly efficient, making the increases possible.
Additionally, the U.S. ‘s production strategy came on the heels of presidential administration efforts to create a greater level of energy independence to distance themselves from being at the mercy of OPEC-led price dynamics. As a country, we achieved energy independence in late November 2018, and have continued a nearly steady upward trajectory until the dramatic dip felt in March of 2020.
4. Diesel fuel prices hit their lowest in the history of Fuel Recovery.
Because of the relationship between crude oil prices and the cost of its refined products like gasoline, diesel, and other products, wholesale diesel hit its lowest price in the history of Fuel Recovery, Breakthrough’s market-based fuel reimbursement service offering.
5. Fuel Recovery clients saw the highest DOE to Wholesale price differential, resulting in the greatest savings potential in the history of the service.
Breakthrough Fuel Recovery clients realize the value of our fuel reimbursement solution on every movement, every day. But in times of heightened uncertainty that drives significant price swings very quickly, this value is maximized. Thus far, the energy market trends experienced in 2020 have led to an average of nearly 74 cent savings on a per-gallon basis—which is nearly 25 cents beyond the previous year-averaged record. The DOE-to-wholesale spread also hit its highest single-day record on April 27, surpassing 114 cents per gallon.
6. Unprecedented Movement Across Economic Indicators
The wider industry trends in 2020 have resulted in economic activity that surpasses many previously experienced extremes.
The most notable economic records of importance to shippers and freight volume include:
- Initial jobless claims hit 33.3 million in only eight weeks. This surge is equivalent to the prior 148 weeks of jobless claims.
- The unemployment rate rose to a record 14.7 percent, recording 20.5 million net job losses in the month of April. This is equivalent to all the jobs created in the U.S. over the past decade and is more than double the jobs lost over the 18-month period of the Great Recession (December 2007 – June 2009).
- The personal savings rate rose 5.1 percentage points, and quickly, setting a record for the largest sudden increase in history.
- Consumer Sentiment experienced the largest one-month drop in history, decreasing 19.4 percent, surpassing the last drastic drop in October 2008.
- Consumer loans decreased by $110 billion dollars since reaching a ten-year high on January 1, 2020.
- Economic Policy Uncertainty Index rose higher than it did during the Great Recession and higher than in any other previous period in a matter of days.
While many of these are not directly reflective of transportation trends, freight volumes, and other sector-specific indicators, each of these is interconnected with the way consumers and organizations purchase goods, and in turn affect supply chains.
7. Trucking Industry employment had the largest one-month drop in its recorded history.
The truck transportation industry lost 88,000 jobs in April, representing the largest one-month drop on record. As the entire economy suffered from job losses, transportation was no exception, losing 5.8 percent since March and 6.2 percent year-over-year. The one-month drop is equivalent to losing all the trucking jobs created since November 2014, and although not all employees in the dataset are truck drivers, an estimated 60 percent of them are.
Not all commercial transportation jobs experienced the same fate, however. Parcel carriers were the only transportation and warehouse sector that did not eliminate jobs and expanded payrolls by 1,800 jobs in April. This was ultimately a result of the shift to eCommerce and home-delivery, as consumers spend more online than going into traditional brick-and-mortar stores amid the stay-at-home orders.
2020 Transportation Industry Trends Shift Away From Freight and Transport to Wider Global Dynamics
Interested in looking back? See what trends had been predicted by industry experts prior to 2019, here.
Past transportation market trends have heavily focused on autonomous vehicles, transportation technologies, artificial intelligence, alternative energies, and other technology to improve the efficiency of the industry as a whole. These recent trends in transportation are still prevalent but have taken a backseat as shippers and carriers alike are forced to adapt in real-time to the rapid shifts felt across major cost buckets in their strategies.
Paying attention to disruption can not only bring context and clarity to challenges and successes manifesting in transportation strategies today, but it can also help pave the way for better navigation and strategic vision in the long-term.