Expectations that US domestic freight activity will pick up in the next few weeks remain low, as commercial vehicle research firms and freight investment advisors signal that freight volumes and truck rates continue to drop, with the COVID-19 lockdown likely to last several more weeks.
“Contractual truckload volume is stabilizing sequentially after declining precipitously from March’s restocking-driven peak,” Susquehanna Financial Group (SFG) said Monday. “But today’s [truckload volume] level is down nearly 10 percent year over year overall.”
Rates are falling as well, with pricing in some truckload spot lanes tracked by JOC.com showing year-over-year declines as of April 20 as high as 25 to 40 percent. That’s an indication the bottom may have dropped out of the dry-van spot truckload market for non-essential goods.
While dry-van and flatbed volumes are down, refrigerated and grocery volumes are up, SFG said in an advisory note. That indicates demand remains strong for essential goods, although the demand surge seen in March has diminished from a peak around March 23.
With US job losses caused by the outbreak of the coronavirus disease 2019 (COVID-19) climbing past 22 million in the last four weeks, FTR Transportation Intelligence is lowering its expectations for second quarter freight activity and a 2020 recovery.
Segments of the US economy tied to freight transportation took “a disproportionate hit” in the pandemic, FTR said in an April 16 report. “We now forecast the GDP Goods Transport Sector [will] plummet nearly 45 percent” on a sequential quarterly basis in the second quarter, the research firm said.
“Although we expect a sharp recovery in the third quarter, the depth of the damage means that we likely will not return to the level of economic output we saw before the COVID-19 crisis until the first quarter of next year,” it added.
Sharp intermodal, LTL volume decline
ACT Research told investment firm UBS it expects further weakening in freight activity in the coming weeks, with a 25 percent decline in intermodal rail volumes in the second quarter. ACT also expects a sharper decline in less-than-truckload (LTL) freight than in truckload activity.
“We expect spot rates to drop 20 percent in April and May from March,” Tim Denoyer, vice president and senior analyst for ACT, said on its COVID-19 market watch website. ACT has lowered its expectations as the complexity of restarting the US economy becomes clearer.
The commercial vehicle research firm also told UBS that small trucking companies may reduce capacity by “cannibalizing” a portion of their fleets for spare parts to avoid the cost of purchasing parts and repairs, a practice seen in the 2008-09 recession, UBS said in a note last week.
ACT now forecasts active Class 8 tractor capacity to fall 4 percent over the next year. “We believe the downturn in freight is likely to drive capacity attrition, supporting stronger pricing and upside for truckload names in the 2021 timeframe,” UBS said in its note to investors.