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March 13, 2020

The Impact of the Coronavirus on the Transportation Industry

Large ship to emphasize transportation

Recently consumers have been excessively purchasing items in preparation of lockdowns and quarantines due to the recent pandemic, Coronavirus, also known as COVID-19. The freight industry plays an enormous role in the shipping of products and have experienced a large spike in demand, while the supply of specific goods continues to decrease. According to FreightWaves, mass purchasing has spiked trucking volumes in the United States as the national Outbound Tender Volume Index (OTVI) increased 9.3% during the last week in February. Usually these types of surges are expected around major holidays, but because of the Coronavirus outbreak, the freight industry was not prepared for this increase in demand.  

 

Product Exporting 

Since the beginning of the COVID-19 outbreak in late December of 2019, the volume of products, specifically exported from China, have been decreasing over time. Before the start of China’s Lunar New Year, factories and manufacturing companies stockpiled goods in preparation for the celebration. With only a fraction of Chinese employees back at work, inventory has continued to decrease which may lead to a larger problem in the near future. As the Chinese supply chain struggles to keep up with high demand, there will be a shortage of goods in other countries, including the United States. According to The Wall Street Journal, Sea-Intelligence said in a report that more than 350,000 containers have been removed from global trade since the outbreak of the virus. Thus meaning, that port trucking will be the first to feel the effects of COVID-19. With a minimum number of workers in China, the freight industry will notice a decrease in both inbound and outbound drayage because of the minimal number of workers able to load and unload at ports. According to Truckinginfo, the ports are taking precautions to ensure the virus does not spread by instructing mariners to stay on their ships. The U.S. Coast Guard is taking the appropriate precautions to prevent the spread at ports; however, other sectors of the freight industry may experience additional drawbacks. 

 

Capacity Crunch 

The transportation industry has been preparing for a capacity crunch for multiple months, and the Coronavirus has accelerated this market flip. Once the initial impact of the virus begins to erode, the freight industry will still experience a state of decreased carrier capacity. At this immediate moment, capacity is beginning to tighten around coastal cities. This is due to imports being drastically reduced. Transportation companies who operate coastal freight are beginning to pull their capacity more inland to reduce losses as shippers believe that this will drive rates down for a short period of time. Flatbed rates will be affected the most due to increased dry van capacity within the Midwest. In turn, shippers will begin to tender their flatbed loads to dry vans as their cargo allows because dry van rates are cheaper due to increased capacity. As a result, flatbeds will begin to react by lowering their rates to accommodate supply and demand. 

 Transportation experts at FreightWaves are stating that because distributors and manufactures have had to drastically increase shipments to their suppliers, such as Walmart, Meijer and Giant Eagle, that this will offset the increased capacity from coastal freight declining. Currently, China is manufacturing at 70 – 80% capacity. However, their exports are drastically down. Most major ports in China, such as Shanghai, have completely seized exports until further notice. This means China’s exports are beginning to compound at their ports. Following the reopening of the Chinese ports, the United States is going to see a massive influx of imported goods from China to resupply. This will drive rates up due to a capacity crunch from the increase of imported goods into United States coastal regions. 

  

Excessive Purchasing  

Individuals around the globe continue to hoard and excessively buy cleaning supplies, nonperishable food items, and household essentials. The rise of concern within individuals has led to the increased number of in-person and online purchases. Overtime, as the concern diminishes, individuals will stop hoarding supplies and may not have to buy specific products for an extended time period. As companies continue to operate below full capacity, they will continue to strategize ways to cope with growing demand. According to USA Today, stores such as Target and Walmart have set up limited purchases on items such as hand sanitizer and disinfecting wipes as Coronavirus cases continue to surge. USA Today also stated that because of Coronavirus price gouging, surgical face mask prices increased 166% on Amazon. Consumers have become extremely concerned as critical household items have inflated price tags. Many have also found that the price of shipping has skyrocketed, while delivery times have increased due to high demand. As a result of the Coronavirus, the global economy will continue to combat the side effects that follow. 

 

Economic Standpoint 

The global economy has seen a negative impact as the number of Coronavirus cases continues to rise. Transport Topics stated that “Economists who closely follow the transportation and trucking industry say the next month will be critical as to whether the economy avoids a recession in 2020”. To gain further insight into this economic outlook, individuals should closely watch how fast businesses bounce back after the virus has passed. After the passing of the outbreak, the transportation industry may seem to regulate. However, there will be a decrease in shipments for specific products that were purchased excessively during the outbreak of COVID-19. The transportation industry has dealt with many disruptions since the beginning of the outbreak and may take some time before the economy fully recovers from this “unplanned event”. Trunkinginfo is encouraging truckers to keep a close eye on the news and monitor events closely to stay up-to-date with the latest information on the economy. With the decrease in intermodal activity and cargo containers, carriers will find that they will be strongly affected by this virus.  

 

Overview 

The Coronavirus has greatly affected individuals, businesses, and specifically the transportation industry on a global scale. With the cancellations of large events and concerts, the transportation industry will start to notice a decrease in shipments of concert stages, food and beverages for these events, and even the flooring for the NCAA basketball tournaments. However, products such as hand sanitizer, cleaning products, and everyday household items will be in high demand. With this increase in demand, truck drivers do not have the option to work from home and taking necessary precautions may be difficult. In an article written by Business Insider, a truck driver states “Not only are we worried about possible virus transmission from going into different facilities, but we’re also always in and out of truck stops across the nation for fuel, food, showers, and more.” As the rapidly spreading virus continues to set uncertainty among individuals, the freight industry must continue to prepare for unexpected events and fluctuation of specific shipped products.