COVID-19 Update: Impacts on Freight Flows
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The novel coronavirus is causing major supply chain disruptions. Supply, demand, and freight flows are changing in irregular ways. Panic buying and hoarding has caused demand for groceries and cleaning supplies to increase, leading to replenishment delays in supermarkets. Food delivery services are experiencing increased demand while restaurant and school suppliers are having to significantly decrease volumes. Although the situation is still developing and changes by the day, here’s what the freight market has experienced in the past few weeks.
Supply and Demand Shifts
Essential Goods. Retail demand for essential goods has grown significantly, particularly in grocery and pharmacy, with some volumes surpassing those seen during Q4 peak holiday seasons. According to FreightWaves, outbound tenders are at the highest levels in three years. Retail distribution centers are only able to fill approximately 25-30% of products on replenishment orders coming in. As a result, some retailers are experiencing out-of-stocks on rice, dried beans, toilet paper, and cleaning supplies, and limiting consumer purchase quantities.
Manufacturers of such goods are busy and having trouble keeping up with demand. With limited access to suppliers in China as well as certain domestic suppliers halting operations, some must source raw materials from new places—causing shifts in capacity sourcing across U.S. supply chains.
One point of relief is coming from foodservice distributors that normally sell to restaurants and cafeterias, as some are shifting their business models to help meet grocery retail demand.
In response to soaring online demand for essentials, Amazon is hiring for 100,000 new positions to support fulfillment, transportation operations, and delivery efforts.
Some are wondering how long this purchasing frenzy will last as consumers begin to feel the effects of a halted economy. Volumes are expected to begin stabilizing soon, and we’ve seen some indications of that already in California and New Jersey. But even if demand for essential goods starts to dip in the near future, it will likely dovetail with a produce season surge and an influx of goods moving into California (now that Chinese ports are opening up), further tightening capacity and boosting rates. Non-Essential Goods. Although many retailers like Nike, Apple, and Nordstrom are closing brick-and-mortar stores, they are shifting to e-commerce platforms and supply chains, which require more last-mile delivery capacity. Retailers selling non-essential goods are experiencing lower demand overall. Distributors selling products to the restaurant industry are also struggling, as restaurants and bars close down across the country to encourage social distancing and slow the spread of COVID-19. Fashion brands like H&M, Zara, and LVMH are getting creative, seeing if they can leverage their production facilities to manufacture protective face masks.
Non-Essential Goods. Although many retailers like Nike, Apple, and Nordstrom are closing brick-and-mortar stores, they are shifting to e-commerce platforms and supply chains, which require more last-mile delivery capacity. Retailers selling non-essential goods are experiencing lower demand overall.
Distributors selling products to the restaurant industry are also struggling, as restaurants and bars close down across the country to encourage social distancing and slow the spread of COVID-19. Fashion brands like H&M, Zara, and LVMH are getting creative, seeing if they can leverage their production facilities to manufacture protective face masks.
Trucking Trends and Issues
Hours-of-Service Relief. The U.S. Department of Transportation declared a national emergency, temporarily suspending hours-of-service (HOS) restrictions in response to the novel coronavirus. The declaration applies to commercial vehicles that deliver critical medical supplies and equipment, food for emergency restocking of stores, supplies and equipment for quarantine facilities, quarantine personnel, medical and emergency personnel, and certain raw materials (FMCSA).
Driver Wait Times and Unloading. Truck driver dwell times have increased 15% month-over-month since February due to high volumes, as well as changes in distribution center operating hours and workforce shortages. Lines of 200 trucks have been reported at loading docks, where drivers are not allowed to enter the facility. Drivers have waited hours and even days to drop off loads, causing chaos and confusion about whether to wait, return later or send loads back to the shipper.
Rest and Truck Stops. Pennsylvania closed all rest stops in mid-March to stem the spread of COVID-19, causing concerns that other states would soon follow. Drivers had no safe place to park and rest, which created a potentially dangerous situation on the roads given the suspended HOS limits. Fortunately, Pennsylvania re-opened most rest stops on March 24 after ensuring safe sanitation protocols in those locations. While truck stops remain open for fuel across the country, some are closing down restaurants, posing another challenge for drivers who need meals on the road.
Rate Increases. Shipping urgency and long wait times are driving truckload rates up. Much of the surge is due to short-haul movements from distribution centers to retailers for replenishment. As of mid-March, load-to-truck ratios were up in nearly all regions, particularly in large cities. Topping the list, Dallas-to-Houston routes rose 14 cents to $2.23 per mile while Chicago to Buffalo jumped 14 cents to $2.47 per mile. Some routes saw declining rates to a smaller degree (DAT). Also contributing to higher rates and increased spot market activity are tender rejections, which have surpassed the levels they were at on Christmas Day 2019.
Safety Controls and Other Observations. For safety reasons, some drivers are being held at guard shacks while trucks unload. These “virtual check-ins” include taking drivers’ temperatures in some cases. Finding truck capacity and drivers willing to bring shipments into areas under shelter-in-place orders could also create difficulties for shippers in the coming weeks (FreightWaves).