Covid-19 rocks transportation: How to keep rolling
Transportation and logistics leaders in the U.S. entered 2020 believing it would be a bounce-back year. Trade
tensions between the U.S. and China marred the economic performance of 2019, when imposition of U.S. tariffs
on Chinese goods (and Chinese retribution) resulted in less-than-expected trade between the world’s two largest
economies. It made 2019 a disappointing year for the transportation industry; nearly 800 U.S. trucking companies
went out of business.1
As the calendar turned to 2020, industry executives
expressed optimism that a healthy economy and new
trade agreements in place would lead to increased trade
and shipping volumes. In late January, however, we
learned the coronavirus outbreak in the Wuhan province
of China would spread worldwide and its economic
implications would be severe.
The U.S. transportation industry experienced widespread
effects from the COVID-19 pandemic in the first quarter
of 2020. An Institute of Supply Management survey
at the time showed that almost 75% of respondents
had already seen coronavirus-related transportation
disruptions to their supply chains. More than 80% of
respondents expected to see some impact.2
Supply Chain Impacts
noted longer lead
times for tier-1
average lead times
more than doubling
compared to 2019.
in receiving orders
loading goods at
more than 44%
didn’t have a plan
in place to address
Among companies expecting supply chain impacts, the severity of impact increased after Q1 of 2020.
Source: Institute of Supply Management Supply Chain
Significant supply chain disruptions began in February. Many businesses had difficulty getting shipments out of China, where manufacturing facilities closed, and workers were quarantined due to the rapid spread of illness. The cancellations are continuing – global shipping lines had canceled more than 160 sailings in April.3 Fifty-one of 243 sailings from Asia to North America were canceled in May; 44 of 236 were canceled for June; and 23 of 240 were canceled for July.4 Without the expected arrival of Asian products, U.S. port and rail volumes fell sharply. Cargo volumes at U.S. ports could be down by as much as 20% since last year.5
The reduced port volumes had a knock-on effect across the country. Goods manufactured in China became difficult to source. Truckers whose livelihoods depend on busy ports had difficulty finding enough work.
In March, many concerts, exhibits and trade shows were canceled. Trucking companies that specialize in moving equipment for such events were hard hit. Restaurants, bars and schools were ordered closed in most places, so truckers that serve food service distributors also lost a great deal of work.
At the same time, demand increased for groceries and the basic needs of the new work-from-home reality. Trucking companies nimble enough to react to rapidly changing market conditions found plenty of work and, for several weeks, premium rates for the work.
From pandemic, to recession, to declining capacity.
Economists said recession was inevitable. At the end of Q1, Goldman Sachs said the U.S. should expect GDP to plunge by 24% in the second quarter of 2020 because of the pandemic. Job losses piled up throughout March and April, eventually hitting 22 million. In early June, the National Bureau of Economic Research declared the U.S. was officially in recession.
Whether by air, sea or road, movement of goods is experiencing critical declines due to COVID-19 and the ensuing recession. The global air freight market has seen a 7.7% drop year over year. As of February 2020, east-bound Trans-Pacific container ship capacity decreased by 31%. In May, U.S. rail traffic had dropped by 27.7% from the prior year.6
Managing risks for the long haul
1. Protect transportation staff. In the pandemic’s aftermath, one of the transportation industry’s most practical needs is addressing a shortage of drivers due to illness. To ensure the supply of critical goods during the pandemic, government agencies relaxed restrictions related to driver hours and some companies are extending overtime to healthy drivers. While intended to relieve supply shortages, these changes increase the risk of driver fatigue.
Digitizing the transportation process brings structure, enabling management to help keep employees safe while meeting productivity needs. Gartner recommends using telematics to track behind-the-wheel driver hours and make schedule adjustments accordingly.
2. Balance cash reserves and spending.
With revenue down for most transportation companies, balancing available cash with expenses is critical. Automating accounts receivables and payables provides cash flow transparency, allowing financial managers to time payments for when funds are available. These tools also offer consistent reporting for better overall cash flow management.
3. Re-evaluate current and future demand.
Opinions on when the pandemic and subsequent recession will end vary. But as states and businesses re-open, transportation companies will continue to play an essential role in delivering goods. Supply chain and logistics managers must evaluate whether they have the financial means to sustain current demand, as well as assess future capital needs.
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
Supply Chain Dive, “Number of Trucking Companies Out of Business in 1st Half of 2019 Exceeds 2018 Total,” September 4, 2019
Institute of Supply Management, “COVID-19 Survey: Impacts on Global Supply Chains,” March 11, 2020
Wall Street Journal, “Container Shipping Lines Cancel Sailings to Weather Coronavirus Storm,” April 6, 2020
American Shipper, “How Canceled Sailings Will Impact US Ports – and When,” May 4, 2020
The New York Times, “Virus Disrupts China’s Shipping, and World Ports Feel the Impact,” February 27, 2020
Statista, “Coronavirus: Impact on the Transportation and Logistics Industry
Worldwide – Statistics & Facts,” June 3, 2020
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