On Thursday, April 16th, we hosted a live webinar in which supply chain experts from Coyote and the Consumer Brands Association discussed how the outbreak of COVID-19 has impacted the U.S. supply chain.
Miss the live version and want to view? You can watch the webinar recording on demand.
In case you’d rather read their insights, we pulled out 20 highlights from both the panel discussion and live Q&A session, and categorized them into the following sections:
- Consumer Trends
- Shipper Trends
- Carrier Trends
- Overall Truckload Market Trends
- Government & Regulatory Trends
Below are 20 questions on the minds of shippers and carriers, answered by these industry experts:
1. What Are We Seeing from the Consumer?
We’ve seen a little bit of everything over the past 5 weeks: surging demand, panic buying, fear, price gouging, hoarding, but most of all, we’ve seen an industry stepping up to deliver essential products to people that need them.
Concern among the American consumer has been one of the only constant forces.
As the weeks go by, this has ramped up — more than half of Americans are concerned about their ability to access crucial products, particularly cleaning supplies and personal care items.
As many industry sectors are shut down and unemployment escalates, the financial health of the consumer is coming into question. Unemployment has already shot up and is expected to continue growing.
Over 60% of consumers are concerned about their ability to pay for the basic essentials they need.
While the Federal Government’s recent $2.2T stimulus bill has helped direct some money to people that desperately need it, it hasn’t been enough to alleviate a lot of the anxiety.
2. What Are Shippers' Top Concerns?
The top concern of all shippers is keeping their people safe, whether that’s in a facility or at home.
That said, some shippers are surging (CPG, grocery, industrial supply, healthcare, etc.) while others are slowing down or stopping altogether (foodservice, apparel, automotive, etc.). Their priorities are obviously different.
Priorities for shippers that are slowing down:
- Keeping their business afloat
- Keeping their people busy and employed
- Repurposing available capacity, whether that is switching production lines (e.g. apparel manufacturers making scrubs, auto manufacturers making ventilators) or using private fleet assets to haul for other shippers.
Priorities for shippers that are surging:
- Supporting employees on the front lines. This includes getting personal protective equipment (PPE) like face shields, masks, gloves, as well as sanitizers and testing kits to facilities.
- Keeping up with higher demand and increased production amidst lower processing rates. In-facility social distancing, safety procedures and higher absenteeism have all contributed to less efficiency than usual.
- Keeping supply lines running. Many shippers are dealing with inventory imbalances, shifting transportation schedules, and uncertain flow of resources (e.g. boxes, labels, raw materials).
3. How Will This Affect Shippers’ 2020 Plans?
Regardless of your industry, whatever 2020 plan you had prior to COVID-19 looks very different now. Not many (if any) supply chain leaders where equipped with a "what-to-do-in-a-pandemic" strategy.
This has created a perfect storm of disruption.
The ultimate lesson that many companies are learning: going forward, they will have to be more proactive in developing disaster preparedness and mitigation strategies. These strategies will touch on areas of supply chain visibility, automation, warehousing and inventory strategies.
Overall, we will likely see a shift away from purely short-term, cost-based decisions towards more flexibility. Shippers will start to look more at the opportunity cost of not building a durable supply chain.
4. How Are Shippers Adding Flexibility Right Now?
Here are some of the ways we’re seeing shippers pivoting to add more flexibility to their operations:
- Changing live-load pick ups and deliveries into drop trailer
- Partnering with providers that can offer instant, flexible capacity
- Creating pop-up fleets at surging origin points
- Adding equipment (e.g. leasing trailers), which can be used for mobile storage, clearing up warehouse space
- Collaborating with other shippers
- Focusing production on product lines where they can make the most, the fastest
- Narrowing the number of SKUs, reducing unnecessary variety
5. What 3 Questions Are All Surging Shippers Asking?
- How do we keep our facilities up and running?
- How do we keep trucks (and drivers) safe, healthy and on the road?
- How do we keep our employees safe and healthy?
Two months ago, radical policies like temperature checks, widespread use of PPE, and changing the way break rooms are constructed, were unthinkable — now they are embraced.
Shippers are working together, learning from each other and adopting best practices. All things considered, the supply chain of critical goods is working — it’s strained, but it’s working.
6. Looking into the Next Few Weeks, Is It Going to Get Easier for Active Shippers?
The short answer is probably not. We’re about to enter an interesting phase as companies start to reopen. It’s only going to get more complicated as:
- There will be geographic and industry disparities as to how and when businesses reopen
- There will be pressure on access to PPE
- There will be more pressure to get tests to areas that need them
As challenging as the last 5 weeks have been, we don’t expect the next 5 weeks to get any easier.
7. What Are Carriers’ Top Concerns?
During March, when widespread shelter-in-place policies started to go into effect, there were initial capacity challenges, as demand surged.
Over the past several weeks, we’ve seen demand (total shipment volume) drop, while most trucking companies have continued to operate.
This is creating an imbalance where there is more carrier supply than shipper demand, which has put downward pressure on spot rates.
In light of that, the main challenges for carriers are:
- Keeping their trucks loaded and moving.
- Sourcing profitable opportunities.
8. How Are Carriers Managing the Disruption?
With the disruption in shipping networks — caused by widespread industry shutdowns — carriers are trying to figure out how to load that backhaul when the freight isn’t there anymore.
As a result, we’re seeing a lot of carriers shift to regional work. For many long-haul opportunities, the money just isn’t there.
Most rates are only accounting for a one-way trip, but with splintered networks, it’s possible that a driver gets stuck without a paying return load.
Many carriers are finding more bang for their buck staying on shorter, regional loads.
Long story short, the cost of running a truck has not decreased, but rates and the availability of freight has.
Carriers are approaching the point where they’re going to have to make a choice: do we keep our drivers running, or start to park some capacity.
If there is one silver lining: supply chain and transportation professionals are beginning to more fully appreciate the driver community. Now their incredibly important contributions are starting to be rightfully recognized.
9. What’s the Current State of the Truckload Market, from a Macro-Level?
Back in mid-March, we anticipated a short-term demand surge, and we got it. Unfortunately, we predicted “short-term” as 2-3 months; instead, it was only 2-3 weeks.
Though spot rates went inflationary year-over-year, demand has started to slow down significantly, driving rates down.
Below is the current state of our proprietary forecasting model, the Coyote Curve®. You can also access a more comprehensive breakdown of current truckload market trends.
10. How Does This Market Compare to the Great Recession?
There are two main differences between the Great Recession in 2008 and today:
- The velocity of the slowdown.
Though it happened relatively quick in 2008, the government effectively freezing on the economy in March has changed the landscape with unprecedented speed.
- The cost of fuel is tanking.
At the beginning of the Great Recession, there was a large fuel spike. This made it more expensive for carriers to operate, which drove capacity out of the market, while keeping spot rates up.
11. What Is the Forecast for the Truckload Market in the Coming Months?
In terms of the Curve and spot rates, we will likely be range bound between +5%/-5%.
Carriers are already pretty close to the point of unprofitable operation, which will keep rates from going too much lower. Some supply is already getting pushed out and demand is tanking.
Unfortunately, these two forces are in a war of attrition and this downward spiral will continue until 1 of 3 things happens:
- 2020 turns out to not be quite as bad as everyone predicts (from an industrial production perspective).
- There is a sudden reversal in the cost of fuel, and diesel rates spike.
- Virus containment efforts are effective and sufficient to reopen the economy and, eventually, we synthesize and implement a vaccine.
If you want a deeper dive into where the truckload market is likely heading, read our most recent forecast.
12. What Will Happen with Contract Rates?
There will be widespread repricing because most shipper networks are in shambles — everyone’s 2020 actual is much, much different than their forecast.
Shippers are sourcing input materials from different places, volumes are either up or down, and demand is coming from different places (e.g. more ecommerce).
The net result is that spot and contract rates will probably converge.
13. How Would an Active Hurricane Season Impact the Truckload Market?
The magnitude of impact that a major weather event has depends on where we are in the market capacity cycle.
If we’re in the upward leg of the cycle, it can have a dramatic effect (like Hurricanes Harvey and Irma in late 2017).
Since we’re likely going to be more-or-less range bound, a major storm will have a relatively muted impact.
It would take a few major storms in close succession to really push the trend line upwards.
14. How Will Produce Season Impact the Market?
Fruits and vegetables will keep growing, and therefore shipping — there will be a produce season. It will create some short-term supply dislocations.
Overall, the ability for this produce season to move market rates is dependent on the health of the supply base.
If carriers are able to stick around, it is unlikely to have a noticeable impact. If not, and carriers have to exit the market, the disruption to shippers will be more noticeable.
15. Will There Be a Surge in Shipping When the Economy Gets Back On Line?
We are confident there will be a strong demand rebound.
Some sectors that are currently dormant will likely see a surge — homebuilding for instance. People will come out of quarantine and want to repair the house. There is also a supply deficit in the housing market right now.
Sales growth has exceeded inventory growth for the first time in five quarters. This is a signal that inventories that were built up ahead of 2019 tariffs are being depleted.
With lean inventories, shippers will need to restock, which will boost production.
We don’t believe that we’re too far away from a rocket-ship-like recovery in consumer demand, getting us into the vertical portion of the “U”.
Exact timing will depend on virus mitigation efforts, but we believe a lot of inflationary trends we originally predicted for 2020 have just been pushed into 2021.
16. How are LTL and Intermodal Being Affected?
In the current environment, there is a premium on shipment velocity and speed, and there is often very little lead time.
LTL has a lot more touches of product (by design) and intermodal networks are generally slower (by design).
For shippers still moving product right now, more touches and less speed present a bigger challenge in this type of environment, therefore, both of these modes will be asymmetrically impacted for the immediate future.
17. How Is the COVID-19 Outbreak Affecting Digital Transformation in Shipping?
Now more than ever, the need for sustainable digital solutions throughout the shipping process is proving to be critical, and the adoption of these solutions needs to be accelerated.
There are still a lot of manual, inefficient processes. Something as simple as signing a BOL is difficult right now because many facilities still use pen-and-paper.
Social distancing practices are driving a much higher adoption of digital solutions that reduce human contact.
The challenge is always change management — how do you get your people in the field to implement these new processes?
Since there is such a clear need right now, it’s helping overcome that challenge.
18. Do Policy Makers Understand the U.S. Supply Chain?
First and foremost, in good times, no one has ever spent much time explaining the supply chain to policy makers.
Now, we’re seeing that a lot of them don’t understand how complex it really is.
For instance, a local canning facility was shut down for 24-48 hours because it wasn’t deemed ‘critical infrastructure’. We saw a similar instance with a labeling company.
Examples like this show a clear lack of understanding of how important these components are to keep other shippers running. We’ve seen this at the federal level, but perhaps even more so at the state and local level.
But you can’t reasonably expect all policy makers to understand how complex supply chains work — we haven’t taken the time to tell the story.
This entire situation has created the type of national dialogue around supply chains that we haven’t seen before, but is much needed.
In the coming months, we’ll need to shift from short-term solutions to long-term, permanent changes.
19. What Policy Changes Has the Government Made So Far?
We (at the Consumer Brands Association) have been effective at getting the DOT to waive some driver Hours of Service restrictions and increase cargo weight limits.
We’ve also been calling for an Office of the Supply Chain. We need a centralized, control-tower approach at the federal level to dedicate more concentrated resources to holistically look at the nation’s supply chain.
While we have not been successful yet, there have been some discussions.
20. Will Regulatory Changes (Like Hours of Service) Become Permanent?
Right now, we have a great opportunity to implement some much-needed reforms. Over the past several weeks, the industry and government have been able to see how nimble the supply chain has gotten.
Some of these changes have been highly beneficial, while others are only prudent in the short-term.
In the coming months, we need to go to policy makers with a list of everything they’ve done, saying, “You’ve made these 20 changes, 10 should be permanent, 5 should be reevaluated, and 5 should stay temporary.”
Right now, there is nothing concrete to show that anything will necessarily stick, but the current situation has provided a great incubator for several policy suggestions.
Want More Insight on How the Coronavirus Is Impacting the U.S. Supply Chain?