US trucking market splits as demand for essentials grows

US trucking market splits as demand for essentials grows

Truckers are shifting capacity to essential freight as traditional business begins to dry up. Photo credit: Shutterstock.com.

Reaction to the spreading coronavirus disease 2019 (COVID-19) pandemic in the United States is creating a new divide within trucking, separating companies that haul essential goods and those that haul everything else. Demand for household goods such as toilet paper; basic foods such as meat, eggs, and milk; and medical supplies and equipment is soaking up truck capacity, shifting it from other commodities.

“In my career I’ve never seen such a split, a fragmentation of carriers based on what they do,” Justin Frees, executive vice president of carrier development at Arrive Logistics, told JOC.com Wednesday. With non-essential retail stores temporarily closed and transport demands for those goods practically non-existent, two distinct “buckets” of carriers have emerged, Frees said.

“One bucket of carriers is so busy they don’t have time to even answer the phone,” he said, and the other bucket is scrambling for a share of that high-demand, higher-priced freight.

“We’ve built some strategic partnership with fleets that run solely dedicated operations for automotive companies that are essentially shut down,” Frees said. “They’re looking for ways to help [relief efforts], and we’re trying to help them. The situation is changing every day. Right now, it seems there’s plenty of freight, but we’re waiting to see how these things work out.”

Conversations with brokers underscore the impression there’s a shift in trucking capacity under way as the coronavirus boosts the need for certain cargo and the availability of other freight diminishes. With stores and plants closing, shippers of non-essential goods — e.g., furniture, electronics, and apparel — aren’t tendering as much freight.

The COVID-19 pandemic is having an impact on where truck capacity is located and when it’s available, similar to the disruption seen in the US in early 2018 following the introduction of the federal electronic logging device (ELD) mandate. That mandate in effect took time out of supply chains, as truck drivers found themselves more tightly bound to drive within legal time limits. 

That led to displaced truck capacity, as next-day deliveries became two-day deliveries when drivers had to stop short of their delivery location. Trucks and drivers weren’t where they were expected. That type of disruption is already clear in container shipping, as blank sailings disrupt the flow of empty containers needed by exporters in the US and Europe.

‘General market disruption’

Displaced capacity is a threat US shippers face this spring as some supply chains contract and others, at least temporarily, expand. “What we see is general market disruption,” said Jason Caporrino, COO of ACERTUS, an automotive logistics provider. “A lot of things in the supply chain have simply stopped or needed to pivot while in transit.”

Carriers, brokers, and shippers will have to collaborate and, perhaps most importantly, closely coordinate purchasing, distribution, and delivery to correct that imbalance.

“Carriers networks and shipper networks in and of themselves are imperfect, and they’ve always had to find efficiencies individually,” said Eric Lien, executive vice president for strategic partners at Arrive Logistics. “In this environment, we’re shifting to a larger imperfect network where some industries are idle, and others are shipping volumes 200 percent higher than normal.”

That imbalance won’t last too long, FTR Transportation Intelligence warns. Speaking to institutional investors on a Stephens Research conference call, FTR chairman and CEO Eric Starks said as business shutdowns slow the US economy, freight volumes will drop sharply, driving total goods movement down 24 percent from the first quarter to the second quarter.

“That’s huge,” Starks said, noting that the drop includes all modes, not just trucking. “From a transport sector perspective, in the short term that is very painful,” he said. “As we start going out over the next several quarters, we will need to increase those inventory levels. And that's why we start seeing a jump as we look at the fourth quarter of this year.”

Starks expects the restocking wave to last another two to three weeks. By that time, Chinese imports delayed by the pandemic will be arriving at US ports. What the capacity situation will be then, and whether stores, warehouses, and plants shutting down now will again be open and receiving goods, is unclear. Clarity won’t come until businesses take down their shutters.

Contact William B. Cassidy at bill.cassidy@ihsmarkit.com and follow him on Twitter: @willbcassidy.