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.
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.1
Supply Chain Impacts
noted longer lead times for tier-1 China-sourced components, with average lead times more than doubling compared to 2019.
experienced delays in receiving orders from China.
experienced delays moving goods within China.
reported delays loading goods at Chinese ports.
more than 44%of respondents
didn’t have a plan in place to address supply disruption from China.
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.2 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.3 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.4
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 an almost eight percent (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.5
Managing risk 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.
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Important disclosure information
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.
- Institute of Supply Chain Management, “COVID-19 Survey: Impacts on Global Supply Chains,” March 11, 2020 Back
- Wall Street Journal, “Container Shipping Lines Cancel Sailings to Weather Coronavirus Storm,” April 6, 2020 Back
- American Shipper, “How Canceled Sailings Will Impact US Ports – and When,” May 4, 2020 Back
- The New York Times, “Virus Disrupts China’s Shipping, and World Ports Feel the Impact,” February 27, 2020 Back
- Statista, “Coronavirus: Impact on the Transportation and Logistics Industry Worldwide – Statistics & Facts,” June 3, 2020 Back