This has probably been one of the most challenging year of most of our lives. The devastating economic collapse caused by the COVID-19 pandemic presents a once-a-generation challenge. No one can predict what a recovery will look like, so right now everyone – including the trucking and transportation sectors – is playing a guessing game trying to figure out the particulars of what an economic recovery will look like.
Many industry advocates and business organizations are already making predictions. In fact, according to industry forecaster FTR, we may not see normality return to the transportation sector until 2022 at the earliest. Certainly, the last half of this year is out and even 2021 is in question right now. No matter what, many believe that there will be permanent, lasting damage to not just the U.S. economy, but to the global economy.
Even in the best of times, predicting an economic recovery is not easy. And to make matters worse, there is no current historical recession that is comparable to what the nation is going through right now. A 30% drop in economic activity simply has no precedent. In the end, the economy will be driven by the virus itself and how the country responds to it, which, right now, is not good.
This comes on the back of a huge economic boom. Consider that in January, many pundits had a far different outlook on how this year would turn out. The reality of what has happened has caught everyone off guard. We went from record levels of U.S. employment to where we are today. The whiplash is quite extreme. The economy had a lot of positives going for it, but all that has now come crashing down.
And the big difference here is in the type of recession we are in. Rather than a recession caused by an economic collapse, we have suffered an economic collapse caused by a natural disaster. But does one beget the other? Many are already under the impression that a depression is just around the corner. And could multiple virus waves cause recurring economic destruction?
The State of Transportation
Even with trucking operating as an essential service during the pandemic, delivering much needed medical supplies, food, and other necessities, trucking feels the pain. Not only did U.S. GDP drop by 32.9% in the second quarter, but the goods transportation sector dropped 42.2%. This represents a huge pit that trucking companies must extricate themselves out of. For many smaller operators, the task might simply be too large. Bankruptcies loom for many trucking companies.
Fortunately, not all hope is lost. The trucking sector is resilient and has made it through many crises. There still is no better way to get goods and services from one place to another than by truck. Some sectors are recovering from this disaster better than others. Dry van leads the way, with reefers and flatbed loads coming in pretty close behind.
For better or worse, the trucking industry has endured something like this before. No matter the recession or economic downturn, people need things delivered. And although you do see peaks and valleys in trucking employment, for nearly a century the trucking industry has managed to weather storms like these better than others in the transportation sector.
As an example, not all sectors are recovering equally from this current disaster. The rail sector is still sitting at rock bottom levels and waiting for a full restart of operations. Intermodal is somewhere in between the two. It has not fully recovered but has at least been picking up. Until global commerce picks up, it is unlikely we will see big gains across every industry in the transportation sector.
Fortunately, many are predicting a big third quarter bounce in GDP. We could see a 20% uptick, but we would still have a long way to go before we fully recover from the terrible 33% loss the nation suffered from in Q2. The question now is: What will the economic recovery look like? Who will the winners and losers be?
The Economic Recovery
The main problem with predicting the economic recovery is the virus itself. No one can predict how the COVID-19 situation will play out. So many questions remain. Before you even begin to consider the data and assume, you must consider:
- When will a vaccine become available?
- Will new treatments pop up that change the paradigm?
- What will be the frequency at which businesses re-hire?
While it is unlikely we will see another huge drop like we did in Q2, the economic recovery will be a slow, stuttering process, with periods of plateaus as the virus works its way through the population. Some believe we may even see a bigger resurgence in the fall.
Either way, many do not think we will see shutdowns like we did when the virus first appeared. While we may see certain regions and municipalities shut down to control specific outbreaks, we should be past the worst of the shutdown. It is also likely we will see tighter regulations at the state level. The federal government is unlikely to regulate, but the states have already begun to.
In addition to the fears of a second wave of the virus, some do fear a second wave of layoffs as a second round of employment challenges come to a head. With people moving around less, buying less, and saving more, many businesses are feeling the squeeze.
The other problem lies in the demise of the U.S. Payroll Protection Act, which provided companies with a jolt of money to keep people on the payroll. Now that this program has expired, the country may see more people laid off as a result. Fortunately, many have built this assumption into their forecast. No matter the forecast, however, the pain is going to be deep.
The Lingering Effects
Get ready for permanent changes to how business gets done. Office buildings are largely empty with everyone working at home and companies have taken notice. Overhead costs have dropped, and productivity is at an all-time high. For those who can work from home, the trend is likely to be sustained. This will have a knock-on effect in other industries.
Take people’s driving patterns as one example. If even 20% of the current at-home workers stay home, you are talking millions of cars off the nation’s roads and highways. Imagine what kind of impact that will have on the oil industry. It is highly likely we have reached peak oil and are on the full downslope now. You will see aircraft and vehicles retired at a record rate.
With people working from home, expect to see an exodus from city centers. You already hear of grumblings coming out of New York that the city will never be the same. High-rise office buildings are like ghost towns. Expect to see this trend accelerate across the country. Commercial real estate will be affected as businesses reduce their workplace footprints.
Work from home life for many will also result in an impact on the housing sector, with more families potentially moving further from city centers, but into larger homes to accommodate workspaces and more home time. There could be ongoing changes to how education is delivered, with more online learning.
E-commerce has been a hot topic in the trucking sector. With more people buying stuff online, trucks are needed to keep warehouses stocked. Last-mile deliveries ensure people get what they ordered same-day in many cases. What we have essentially seen is a shift to an entirely new type of consumer. What may have taken many years to develop has now happened in a few months.
Fortunately, many consider this to be the bottom. As people go back to work and spending rises, there should be a noticeable uptick in the fortunes of the trucking sector. Still, uncertainties remain. From the trade war with China to the upcoming election and unrest in the United States, who knows how this could all play out.
In the end, trucking companies who are nimble and think ahead will come out on top. While this crisis is unprecedented and has done a lot of harm, businesses can survive and even bounce back. The question is, how do you plan to operate in a post COVID-19 world?
from Quick Transport Solutions Trucking Blog https://ift.tt/2G1mMGv
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