US trucking companies are bracing for a slowdown even as insatiable demand for essential goods elevates freight volumes. They’re expecting the surging demand for toilet paper, food, and household goods buoying them now will eventually ebb, although it’s not clear when.
In the meantime, the coronavirus disease 2019 (COVID-19) pandemic has them running around the clock, facing tightening cash flow and network disruptions. The cost of doing business now includes sanitizing facilities and trucks and keeping drivers safe while on the road.
Many trucking companies large and small operate on thin margins, with operating ratios in the 90-percent range, which means cash could get very tight if revenue drops precipitously. Even large carriers could face a cash crunch, especially if customers stretch out payments.
Trucking and logistics operator ArcBest cited general economic and financial market uncertainty when it borrowed $225 million under its credit facility and accounts receivable securitization program last week, bringing its cash position to between $530 million and $540 million by Tuesday.
“These borrowings are a proactive measure to increase the company’s cash position and preserve financial flexibility,” the parent company of ABF Freight System and Panther Premium Logistics said in a March 30 filing with the US Securities and Exchange Commission.
ArcBest also said that while shipments hauled in the first quarter decreased 2 percent overall, total tonnage per day jumped 4.5 percent, with a low single-digit percentage gain in the less-than-truckload (LTL) business and a double-digit jump in truckload spot tonnage.
That means where contractual LTL freight — more typically industrial freight — was unavailable, ArcBest was able to use ABF equipment to haul spot market truckload-rated shipments and LTL transactional business. That business most likely spiked with demand for essential goods.
Trucking capacity still shifting
The pandemic is redefining trucking by whether goods hauled are essential or non-essential. The latter may include entertainment-related products, apparel, furniture, and durable goods such as appliances. Toilet paper, groceries, fuel, and medical supplies are in high demand.
“Clearly, our capacity has shifted dramatically from non-essential to essential volumes and our network has been disrupted in major ways,” Derek Leathers, president and CEO of truckload carrier Werner Enterprises, an 8,000-truck company, said in an interview Tuesday.
“We see a group of customers with surging volumes, typically sanitizers and medical equipment,” said Geoffrey Muessig, chief marketing officer and executive vice president at Pitt Ohio Transportation Group, a transportation operator with regional LTL companies and nationwide truckload reach.
“We’re also seeing some customers temporarily shuttering operations,” Muessig said. “We’re pivoting to provide resources to those whose demand is surging, recognizing we have surplus assets in other places.” The challenge for shippers and carriers, “is to be agile,” he said.
Shippers moving essential goods are adapting to higher levels of demand by changing how and when they ship, Muessig said. “Some of our customers are asking for later pickups, and some are asking for weekend work,” he said. “We’re also asking them to pre-sticker the freight.”
That means the shipper applies a sticker with a progressive number (PRO) to the shipment before pickup. Typically, drivers apply carrier-generated PRO numbers to shipments, but if the stickers can be printed by the shipper, time is saved and “social distance” maintained.
How long the rush on essential goods will last is a great unknown. With emergency measures in many areas likely to last into June, and the pandemic spreading to new hotspots, demand could remain elevated for weeks before cooling, keeping trucks and paper mills running nonstop.
Likewise, the sudden decline in demand for non-essential freight could be slow to reverse and persist well into the recovery, as lost revenue and wages, coupled with surging unemployment in the retail and restaurant sectors, drags on business and consumer spending.
“The essential volumes have some runway ahead of them,” Leathers said, as the pandemic spreads. “Eventually, the decline in non-essential volumes could outweigh the increase in essential goods. We’ll have to be prepared for that and work as smart as we can.”
‘There will be a slowdown’
Before the pandemic, Werner anticipated freight volumes would decline in March from February. Instead, increased replenishment shipments from core customers held volumes at a higher level, with demand strengthening in the last two weeks of March, the company said.
Rates and miles per truck have improved in March sequentially from February, the company said in a March 26 presentation on its COVID-19 response, before JOC.com spoke with Leathers. In its dedicated division, demand has remained steady, thanks to store replenishment.
However, “we know there will be a slowdown in our future,” Leathers said. “The longer the virus lasts, there is a point where overall freight demand will slow. Our responsibility right now is to load every truck we can and keep every load moving we can possibly move.
“One of the things that worries me the most right now is everybody is concerned about liquidity and we’re seeing a movement toward wanting to pay truckers more slowly,” Leathers said. “If truckers aren’t paid, it will be devastating. These are not cash-rich businesses.”
Eric Fuller, CEO of US Xpress Enterprises, also sees more trucks that once hauled auto parts, furniture, or electronics shifting to hauling groceries and medical supplies. “We have a lot of customers in that essential products bucket and all of them are very busy,” he said.
“Most are seeing greatly increased volumes relative to what you see at this time of the year,” Fuller said. “They’re open and seeing unprecedented demand. So capacity is shifting over to the grocery and consumer side of the business. It’s shifting buckets.”
That’s kept volumes at US Xpress, which had $1.7 billion in revenue last year, about even with the company’s expectations for March, Fuller said. However, April and May could be very different if imports piling up at US ports begin moving to inland distribution centers.
“We’re trying to determine what a recovery will look like,” he said. “There’s going to be some retail catch-up.” Much depends on the length of the recovery, which IHS Markit, parent company of JOC.com, forecasts could begin as early as August and gain steam in the fourth quarter.
Demand destruction ahead
The shape of that recovery will depend on the level of demand destruction caused by the pandemic and recession. Will millions who lost jobs in March and April be rehired quickly, and will they have the money or appetite to resume consumption at pre-pandemic levels?
Will lost freight demand outweigh the capacity destruction caused by the COVID-19 recession? Truckload carriers were already trying to rein in excess capacity before the pandemic. The shutdown of so many businesses will no doubt leave many trucks parked.
“It’s hard to understand at what rate of speed the economy will reaccelerate,” Muessig said. “That’s going to drive it. While everyone hopes for a quick recovery, that would potentially lead to dislocation of resources. If it’s a slower rate of recovery, the marketplace will adjust.”