Prospects of US freight recovery fade on new COVID-19 stings

Prospects of US freight recovery fade on new COVID-19 stings

US ports are projecting a 20 to 30 percent drop in container volumes in the first half of 2020, according to the American Association of Port Authorities. Photo credit: Shutterstock.com.

As some states ease stay-at-home orders despite the lack of testing and contact tracing, threatening flare-ups of the coronavirus disease 2019 (COVID-19), the prospect of a significant US freight recovery this year is fading. Equally alarming are the hits various transport sectors have already taken due to the volume drop, hinting at the scale of pending damage for the rest of the year.

US ports are projecting a 20 to 30 percent drop in container volumes in the first half of 2020, according to the American Association of Port Authorities (AAPA). The Global Port Tracker report on May 8 downgraded the outlook for import volumes even further, dispelling hopes for a peak season as it forecasts double-digit year-over-year volume declines each month until September. And even then, volume will fall 9.3 percent over 2019, according to the report created by Hackett Associates on behalf of the National Retail Federation. 

“Much will depend on consumers’ willingness to return to spending,” said Ben Hackett, founder of Hackett Associates. “Our view is that second-quarter economic growth will be significantly worse than the previous quarter, but we continue to expect recovery to come in the second half of the year, especially the fourth quarter and into 2021. This is based on the big and somewhat tenuous assumption that there is no second wave of the virus.”

While ports and marine terminals find creative ways to keep workers safe, the fault lines are showing. US ports, marine terminals, and stevedores are seeking federal help to shoulder additional costs tied to COVID-19 and to weather the bigger impact from the loss of containerized, breakbulk, bulk, and roll-on, roll-off cargoes, as well as cruise passengers. The scale of relief the maritime industry seeks, naturally, will widen as the declines deepen, but the size of early proposals are still staggering.

The Association of Waterfront Employers (NAWE) is asking for a one-time grant program of $400 million to go toward cleaning supplies and personal protective equipment (PPE), including plexiglass shields between truck gate operators and drayage drivers. AAPA has asked Congress to consider a $1.5 billion grant program for ports, allowing them to maintain their workforces and weather financial shocks that the port association says could trigger the direct loss of up to 130,000 jobs.

Uncertainty in the air

The air cargo industry is maxed to capacity. But that belies the massive culling of capacity — by 25 to 30 percent, according to various estimates — and that the demand to ship medical supplies is so high it has clogged Chinese airports. The current environment of tight capacity may last after PPE demand falls because of reduced demand for non-medical shipments, warns Alexandre de Juniac, director general and CEO of the International Air Transport Association (IATA). “The recession will likely hit air cargo at least as severely as it does the rest of the economy,” he told JOC senior editor Greg Knowler.

The uncertainty in the airline industry about when travelers will embark and at what pace clouds the outlook for when belly capacity will return. Will there be enough space for electronics, perishables, luxury goods, and fast-fashion apparel? Will there be enough capacity to make shipping some lower-value items still cost-feasible? IATA doesn't expect passenger flight frequency to recover to 2019 levels until 2023. 

The longer the shelter-in-place restrictions remain, the deeper the job losses the US economy can expect — at 14.7 percent last month, according to the US Bureau of Labor Statistics — and the same goes for freight transportation employment. Some sectors are hurt more than others, with trucking arguably bearing the brunt. In April, for-hire trucking companies lost more than 80,000 jobs, equating to approximately all the trucking jobs that were added in the last four years, according to the BTS monthly employment report released May 8.

Some of those jobs will come back, but many won’t, argues Jeff Tucker, CEO of Tucker Company Worldwide. He hopes for a resurgence in demand as stay-at-home orders are lifted, but warns “the reality is that US freight volumes may not return for years, and in that time, there will be a larger reduction in drivers and carrier counts. When the economy begins to recover, shippers will face higher prices, fewer options, and shortages of capacity.”

Container lines have met plunging demand with the same capacity discipline they’ve been exercising for more than two years. The carriers blanked 17.3 percent of trans-Pacific capacity in the second quarter, according to Sea-Intelligence Maritime Consulting. So even as Asia import volumes fell 1.7 percent year-over-year in April, according to IHS Markit data, the FEU spot rate from Shanghai to the West Coast hasn’t dipped below $1,450 since early May, with rates in the last two week of April above $1,700, according to the Shanghai Containerized Freight Index. Although the Asia import decline eased last month, Asia import volume year-to-date is down 7.3 percent compared to the same period a year ago.

US import demand could come back strongly and then wither if the underlying economy is still weak, said Uffe Ostergaard, president, North America, at Hapag-Lloyd. “Our approach is to be cautious in terms of capacity allocation, and if for some reason the market comes back stronger than we expect, great, and then maybe we lose out a little bit, but we don’t put cost into something we really don’t know if it will have a return.” He expects the broader container shipping industry to behave similarly in terms of cautiously adding capacity. 

Contact Mark Szakonyi at mark.szakonyi@ihsmarkit.com and follow him on Twitter: @MarkSzakonyi.