2020 Mid-Year Transportation Market Update: What to Know as a Shipper

Mid-Year Transportation Update

In its 31st annual State of Logistics Report, the Council of Supply Chain Management Professionals (CSCMP) summed up the supply chain impact of COVID-19 in one statement: "The pandemic, and global measures taken to reduce its further spread, have decimated supply chains, scrambled logistics capabilities, and destroyed huge swaths of demand."

In Morgan Stanley’s recent freight transportation COVID-19 sentiment survey, 78% of respondents stated that COVID has a had a “medium” or “high” impact to their business.

With that said, what's been happening in transportation so far in 2020, and what can we expect going forward?

Here's our take on some transportation market trends we're seeing from our Logistics Control Center.

Both the economy and freight markets were strong at the end of 2019.

GDP growth and freight rates were down (fairly significantly) from 2018. However, that was only due to the unprecedented GDP growth and truckload rates experienced in 2018. All signs pointed toward a bullish 2020 for freight rates and demand. And then...

In March, the spot market shot up based on initial COVID concerns and demand for medical supplies and food.

Three weeks later, spot rates bottomed out to below pre-COVID levels and stayed at record lows for two months during the shutdown. Only recently, as the country starts to reopen and normal seasonal factors kick in, has the freight market shown signs of life.

36% of carriers are having difficulty running smooth operations.

For carriers, the most common response to the survey regarding causes of interruption was "other ." According to Morgan Stanley Research, this "reflects the usual suspects: lack of freight, closed customers, low rates, and network imbalances."

The carriers hit the hardest by COVID have been those with a small, concentrated group of customers in industries that were the hardest hit. Carriers hauling furniture, food (service industry, restaurants, hotels), and clothing have been disproportionately impacted by COVID. On the other hand, carriers with a diverse book of freight and those that haul a high percentage in the medical equipment and retail food industries have likely experienced a strong second quarter.

COVID also highlighted the resiliency of our logistics industry and those who work within.

Even during peak shut-down when unemployment spiked and stock prices tumbled, carriers and truck drivers continued to run. Third party companies like LeanCor, logistics professionals, and carriers all collaborated and the results have been remarkable. In CSCMP's aforementioned report, "shippers reported a sense of solidarity with their 3PLs through the pandemic and reported that the 3PLs had a 'we're in this together' attitude."

What can we expect moving forward?

Depending on how severe a second wave of COVID will be as the country reopens, most industry experts believe the COVID rebound and strong underlying economy is positioning the industry to bounce back quickly to pre-COVID conditions or better.

At LeanCor, we've been focused on educating the industry on the critical topic of supply chain risk and resiliency. Instead of lowering inventory levels and sourcing materials from the lowest cost suppliers, companies will look for the flexibility that comes with carrying the right amount of inventory and reshoring / nearshoring. This volume will be positive for US domestic freight markets.

We anticipate truck capacity will tighten and rates will steadily increase (compared to 2019) as we head into Q3 2020 and beyond.

Expect spot rates to continue to climb year over year and contract rates (negotiated in the second half of 2020) to be 5-10% above contracts negotiated in the second half of 2019.

If a second wave of COVID is muted and/or a vaccine is developed driving unemployment back down, the impact to the market could be even greater.


 

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Posted by Steven Prince, Transportation Manager at LeanCor

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Results-driven logistics and transportation leader with expertise in carrier procurement and performance improvement, pricing, safety/rules compliance, strategy development, and supply chain implementation

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