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In the face of a slow economy and everything that goes with it, Kevin McMaster expects shippers and carriers to bounce back from coronavirus, just not immediately
Coronavirus was an unpredictable event that changed life as we knew it. It has led to outcomes the likes of which we’ve never seen before in global freight markets, supply chains, and the United States trucking industry.
We sat down with Kevin McMaster, the Vice President of Carrier Sales and Operations at Flock Freight®, to understand his perspective on how the pandemic may affect freight markets in the short term and long term.
How do you think the freight industry and truck drivers will be affected in 2020?
McMaster: Unfortunately, I anticipate the stress of coronavirus to increase the amount of asset carriers that will cease operations in the near term, not solely because of how the pandemic is currently impacting the trucking market, but rather because it’s magnifying the generally lower volumes we saw in the first quarter, which will, inherently, impact bottom lines.
With non-essential businesses limiting production, all indicators project volumes to remain lower than previous years. This negative impact on freight demand will affect the standard operations of most trucking companies and reduce asset utilization. Once things normalize, I don’t anticipate trucking volumes to soar across all markets; I think there will be anomalies of market spikes (likely in port cities) as customers that suffered from the effects of coronavirus replenish their inventories.
Shippers may be driven to push low quantity purchase orders more frequently on freight volumes that, historically, filled truckload supply. We anticipate freight demand to increase in the partials and less-than truckload (LTL) sectors because of this.
Overall, the U.S. freight market could struggle to rebound. It may take until the second half of 2020 for the market to stabilize and consumer confidence to grow. Unemployment is likely to remain inflated with demand still volatile and uncertain. Most trucking companies and truckers have seen rough times before, but there are concerns that the U.S. economy hasn’t faced a challenge like this since the Great Depression.
Any freight or trucking trends we might see once all businesses are up and running again?
McMaster: Here’s the breakdown in my mind:
- Higher freight volumes
- Lower quantities
- Increases in dropshipping
- Margin compression
- More competition
- Fewer players in the trucking industry
- A decrease in orders of Class 8 vehicles
- More affordable trucks and trailers
Once authorities lift quarantine orders, many non-essential businesses will reopen and give rise to higher freight volumes. Large-scale shippers will continue to leverage multi-modal capacity, but budget pressures will force supply chain leaders to be creative as they minimize costs. I also believe dropshipping will become more popular due to benefits like time and cost savings.
The trucking industry is generally characterized by small margins, and I believe we’ll see a return to them when normal business operations resume.
Currently, both asset-based and non-asset-based businesses are closing, which tells us there will be fewer trucking companies at the end of the pandemic than at its beginning. Ultimately, a smaller marketplace will drive increased competition from the remaining players. Those with true differentiation will reap the benefits of their innovation.
In terms of private fleets, we’ve noticed the use of lower quality trucks and trailers, along with a decline in Class 8 truck purchases. In weak markets, carriers have less operating capital and less desire to purchase premium equipment. They’re trying to conserve capital, and using more affordable assets is another way for them to spend less.
However, these market conditions should reverse when the U.S. economy regains its strength.
What’s your take on how coronavirus will impact freight and trucking logistics in the next five, then 10 years?
McMaster: Besides the trends in the bulleted list above, consumers will change their buying patterns and shippers will continue building strategic relationships with trusted partners who they can count on in both good times and bad.
The pandemic will affect the trucking industry the most in the next 12 months. Trucking companies will focus in the near future on achieving pre-crisis business results, and then settle into the new normal thereafter.
One thing is for certain: Coronavirus has taught us supply chain diversification is key. The pandemic is hurting smaller business with limited manufacturing and shipping processes more than those with scale and flexible supply chains.
As for the logistics industry, I believe the inefficiencies of the traditional freight brokerage have been brought to light. Providers that have made large capital investments in the differentiation of their products and technology are poised to gain confidence from the shipper and carrier communities. They are well-positioned for growth. Those that have not will struggle to remain relevant.
Any insights trucking companies can draw from past crises?
McMaster: It’s hard to draw conclusions from past crises since multiple aspects of this emergency are unprecedented. It’s been a long time since a health crisis like COVID-19 has been so problematic. Still, we can find parallels in natural disasters and past economic downturns.
When it comes to supply-chain disruption, the effects of coronavirus have been similar to those of natural disasters, but they’ve occurred on a global scale instead of being concentrated and regionalized. This situation is much worse because the whole world is struggling to keep supply chains intact, resulting in fewer resources and potentially less allies to utilize for aid.
As far as the financial implications go, freight companies can look to prior economic slowdowns for clues about the industry outlook. We’re still assessing the possibility of a freight recession.
Eventually, global economies will stabilize and the overall economic cycles will match what we’ve seen historically. As with everything, we will get through this. Although we are unsure of when, we know the best is yet to come.
In all, we see what this industry is truly made of: A network of providers that bring calm to our communities with the delivery of essential goods.