In January 2020, no one could have expected that the year would take such a catastrophic turn. All industries were impacted by the first global pandemic since the Spanish Flu in 1918. As lockdown and quarantine requirements damaged service and hospitality industries, and as healthcare organizations struggled to get supplies, there were decreases in trucking volume and increases in some freight categories.
Trucking saw a surge in hazardous material (Hazmat) shipping requiring more HME drivers. The reason? Hand sanitizer is classified as a hazardous material. And we know how the volume of demand and sales went up dramatically. The problem was so critical that on April 2, 2020 the hazardous materials regulations (HMRs) were amended.
The Pipeline and Hazardous Materials Safety Administration (PHMSA) issued a list of products that would have temporary relief from standard HMRs on highway freight transporters. This only applied to alcohol-based hand sanitizer products.
Special packaging rules were also implemented for small containers of sanitizer (not over 8 gallons) and larger containers up to 119 gallons. The PMHSA has just announced another extension for sanitizer products through to March of 2021.
That is just one product class and example of how shipping and freight regulations and restrictions changed during the ongoing Covid-19 pandemic. The trucking industry had to also navigate other shifts in freight demand and regulation, as well as contraction in key industries like oil and gas.
The First “Hit” to Trucking Was Not The Coronavirus: It was the Trade War With China
If you want to gauge the health of the American economy, the first sector you should look at is trucking. Sure, we are biased, but not wrong in that statement. There are a variety of indexes that economists monitor closely regarding trucking capacity and volumes that can help them predict what will happen next. And in some cases, estimate the time it may take for the National economy to recover.
But the first major hit to the trucking industry was the trade war with China. The negotiations to get a better deal for many American industries that export and import goods, did not go well. And the result became an aggressive showdown between the world’s two largest economies.
The ultimate result from the trade war with China was more pain than gain for the United States, according to economists. Heather Long, an economy and business writer for the Washington Post stated that:
“U.S. economic growth slowed, business investment froze, and companies didn’t hire as many people. Across the nation, a lot of farmers went bankrupt, and the manufacturing and freight transportation sectors have hit lows not seen since the last recession.”
The Federal Reserve Bank of New York and Columbia University research revealed that U.S. companies lost at least $1.7 trillion in stock prices that fell as a result of the trade war between China and America. Moody’s Analytics released a report in 2019 that found the U.S. economy lost almost 300,000 jobs and 0.3% of real GDP as a result of the trade war with China. A hit to the economy that was estimated by Bloomberg Economics to cost $316 billion to the American economy by the end of 2020.
The Outbreak in China Makes Containerized Freight Nosedive in February 2020
Freight volume rates were already weakened by the trade war between China and the United States. By the time, the Covid-19 pandemic was recognized as a global crisis, freight volumes took another deep dive that significantly hurt the cartage industry.
The first noticeable change was the reduction in vessels traveling to American ports from China. There is a trade deficit between the United States and China. For instance, more than 11 million maritime containers arrive annually to the United States.
In February of 2020, the containerized cargo volume arriving from China to the United States dropped from 37,311 TEUS to 4,855 TEUs. That was the beginning of the nosedive in freight volume, as China “shut down” production during the peak of its Covid-19 outbreak. All global supply chains came grinding to almost a halt. And with it, the American palletized and container freight logistics demand.
Covid-19 Led to Massive Layoffs and Bankruptcies in the Trucking Industry
Imagine seeing businesses in your industry that have thrived for thirty years or longer, succumb to the combined effect of loss of container freight volume? That is what it was like for professionals employed in the trucking industry and business owners.
Because of pressures from the trade war, 2019 was described as a ‘blood bath’ for the American trucking industry. Data from Broughton Capital LLC indicated that 640 trucking companies filed for bankruptcy during the first half of 2020. Many of the bankruptcies occurred right before the holiday season in 2019, which left thousands of truck drivers without jobs.
Some of the trucking and logistics companies that filed bankruptcy were Falcon Transport, New Century Transportation, Jevic Transportation, Arrow Trucking (1,400 drivers), New England Motor Freight, and Celadon Trucking Services.
Oil Production Reduced and Impacting Cost of Diesel
The Organization of petroleum Exporting Countries (OPEC) announced that all members would decrease oil production globally, by 10 million barrels per day. The cut represented about 10% of global supply, but some industry experts say that the cuts could add up to 20% of the global supply of oil by the end of 2020.
OPEC indicated that it would continue to gradually decrease oil production the same way, until April of 2022. The effort is being made to stabilize oil prices, and to reduce a price war that was pushing price per barrel for oil down.
While the move by OPEC protects American energy jobs, it had a detrimental impact on trucking. For instance, a reduction in oil production meant that diesel prices would go up. Although at the time, logistics industries were assured that would not happen.
In 2020, the cost of diesel fuel climbed by 5.8 cents per gallon. That was almost twice the most previous high rate for fuel that truckers paid in the beginning of 2020. The cost of diesel rose sharply in 10 regions reported on by the Energy Information Administration.
How Do Diesel Prices Impact Owner-Operators and Fleets?
Reduce the availability of a commodity and increase demand, and the result is price inflation. Which is exactly what happened (and is still happening) across the country. This puts a very challenging increase in operational expense for both carriers with company owned vehicles and fleets, as well as independent owner-operators.
Truckers in the Midwest were hardest hit when diesel rose 7.8 cents to $2.339 per gallon. California remains the most expensive place for truckers to fill-up, with an average rate of $3.240 per gallon. It is the only state as of November 2020 that is paying more than three dollars per gallon.
The average annual diesel fuel use for a Class 8 truck is 11,818 gallons. At the time of writing, diesel costs were $2.091 per gallon on average in Texas. That would be an average fuel cost for a Texas CDL driver of $24,699.62 at current prices. For California drivers, it is a current average cost of diesel would be $38,257.92.
More than 70% of all goods sold or used in production or services are transported by the trucking industry. Logistics companies must maintain competitive rates, without putting an additional cost burden on commercial businesses who rely on freight. However, as the Covid-19 virus continues to create economic contraction, those costs will have to be factored in. And that ultimately means increased cost of goods and services for consumers.