National Post (National Edition)

U.S. TRUCKERS ENJOY SURGE IN DEMAND

BUT ‘SCARY’ Q2 SHAKEOUT LOOMS FOR INDUSTRY

- THOMAS BLACK

U.S. trucking companies are riding a surge in cargo demand from consumers stockpilin­g basic goods, but it probably won’t last long.

Shipping has picked up pace as the rest of the country shuts down to help control the spread of the coronaviru­s. Trucks are rolling down traffic-free highways and arriving at distributi­ons centres where workers unload pallets and packages in an eerily empty landscape of closed-down schools, office buildings and malls.

But rampant buying will subside as pantries and cupboards overflow, and demand for other products, such as furniture, luxury items and auto parts will stagnate as people hunker down in their homes, said Bob Costello, chief economist for the American Trucking Associatio­ns.

“Freight is really strong, and it’s because of all this surge in activity around replenishi­ng grocery stores, retailers and pharmacies,” Costello said in an interview. “I think April is going to be soft. I mean, very soft.”

The trucking industry is a key player in the movement of physical goods that keep the economy humming. How freight holds up as China ramps up exports and the U.S. begins to shuts down its cities to break the contagion may provide early clues to how severe the pandemic’s economic damage will be.

Heavy purchases of food, medicine and key consumer materials such as toilet paper and bottled water are keeping truckers extra busy for now, and demand for other goods has yet to taper off as people hunker down in their homes, Costello said. But he expects demand to drop sharply in April and May.

Nonetheles­s, rates have been rising because of the heavy demand spurred by the new coronaviru­s — a welcome respite after a yearlong freight slump.

Trucking rates on the spot market for dry goods rose about 5 per cent for the week ending March 11 compared with a year earlier, the largest weekly gain in more than 12 months. Rates for refrigerat­ed truck freight climbed about 2 per cent, according to a KeyBank Capital Markets report. Spot rates for all of last year fell 20 per cent from 2018.

Low fuel costs are also giving truckers a boost after oil plunged last week to the lowest level since 2002.

March’s activity boom looks on par with the peak December holiday season for some shippers, said Jeff Kauffman, a transporta­tion analyst at Loop Capital. He thinks the strong demand in basic goods will continue as people forgo restaurant­s and shopping at retail centres to eat at home and order items online.

“What you’re seeing is a shift in the consumer wallet,” he said. “That portion of what a consumer spends is elevated and it’s going to remain elevated.”

With a strong March finish for freight, the fallout from coronaviru­s won’t show up much, if at all, in first-quarter earnings reports, Kaufman said. He expects that to change dramatical­ly as government-mandated shutdowns of non-essential businesses cause the economy to tank.

“Clearly, second quarter is going to be scary,” Kauffman said. “The question is how fast do we bounce back as we finish the second quarter.”

A second wave of freight demand is coming from China as most factories there have already restarted production and will be sending supplies to the U.S. That cargo could take several weeks to reach U.S. ports as shipping companies just now are returning empty containers to China, and Chinese ports are resolving issues of driver shortages and congestion.

And it’s unclear how much longer-term consumer spending will be hurt as people shelter in place, companies begin laying off workers and small businesses suffer from a sudden dearth of sales. Much will depend on a spending package being hashed out in Congress and the effectiven­ess of U.S. Federal Reserve moves to prop up the financial system.

“There will be a reduction in demand from the heavygoods industries for a period of time, and the period of time is the big question mark for everyone,” said Frank McGuigan, chief executive officer of Transplace Inc., which helps companies manage their shipping operations. “If you’re selling living room furniture sets or cars, I just don’t see a lot of people consuming that type of stuff right now until people have a better view of when we’re going to come out of this.”

The trucking market had already reached a bottom at mid-year in 2019 after a 25 per cent drop in freight rates, and was poised for a slow recovery coming into this year, said Chris Pickett, chief strategy officer for Coyote Logistics, a freight broker unit of United Parcel Service Inc. A lot of smaller trucking companies went bust and larger truckers scaled back during the freight recession, taking excess capacity out of the market.

Along with the surge of freight in March, rates have been pumped up because regular contract cargo has been disrupted and the market is being driven by spur-of-the moment freight shipments that are settled in the spot market, Pickett said. Spot rates are used by companies to price longer-term freight contracts, which usually are renewed for a year.

As the U.S. economy slides into recession, there could be another shakeout of trucking companies that don’t have time to fully recover from last year’s freight downturn. One eventual bright spot will be diminished inventorie­s, which had been stubbornly high for more than a year, dragging on freight demand.

“We’re going to have radically depleted inventorie­s across a broad swath of industries that, for the first time in a number of years, will have to be replenishe­d aggressive­ly when we get to the other side of this,” Pickett said.

In the meantime, trucks are still rolling and there’s “zero indication” of problems with supply chains, said Costello, the American Trucking Associatio­ns economist. Services that drivers depend on — truck stops and state-run rest areas — continue to operate. The importance of trucking is more evident than ever in this time of crisis and drivers are responding, he said.

“They’re feeling very patriotic,” Costello said. “They’re all out there doing this work that we need them to do and they’re doing it well.”

I THINK APRIL IS GOING TO BE

SOFT. I MEAN, VERY SOFT.

 ?? DAVID PAUL MORRIS / BLOOMBERG ?? Trucks wait in line to enter the Port of Oakland in California last Thursday as the spread of the novel coronaviru­s
has seen an increase in cargo demand as consumers buy up basic goods.
DAVID PAUL MORRIS / BLOOMBERG Trucks wait in line to enter the Port of Oakland in California last Thursday as the spread of the novel coronaviru­s has seen an increase in cargo demand as consumers buy up basic goods.

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