COVID-19's Wake Causes Volatility in Trucking Rates

COVID-19’s Wake Causes Volatility in Trucking Rates

The coronavirus has had a large impact on the global economy, affecting every industry in its own way. The transportation industry has been no exception and has seen several ups and downs throughout the first half of 2020.

While 2019 was remembered for strong volumes, excess capacity stemming from 2018 kept rates down and competition high. In early 2020, both dry van and reefer rates saw seasonal declines until March when COVID-19 resulted in a run on retailers that drove up volumes as distributors worked to restock shelves. Compared with last year, trucking volumes initially increased by about 30 percent in 2020 as a result of panic buying, according to McKinsey & Company.

The run up in rates in March were then met with a sharp decline in April and May, as cities across the U.S. began to shut down. COVID-19 outbreaks in meat processing plants and restaurant shut downs pushed reefer rates down. Flatbed rates fell, hitting their lowest points since early 2017, as the drop in oil prices shut down domestic production and construction jobs were postponed due to economic fears. Dry van volumes also fell as retailers recovered from the initial wave of consumers stocking up. On May 3, the national average spot van rate was around $1.50 a mile, a four-year low, according to DAT Solutions. In addition, manufacturing continued to struggle due to global supply chain issues and concerns from the workforce about returning to the jobsite. 

Since the pandemic initially began, rates have been increasing over the past two months as some cities have begun to reopen, construction projects are moving forward and global supply has started to recover. Spot rates and volumes are now falling more in line with normal seasonal trends, according to June data from DAT Solutions.

Further escalating rates have been caused by a shortage in drivers, along with increasing insurance costs that have shut down several operators. In addition, the concern of COVID-19 has kept several drivers off the road due to safety concerns. Somewhat tempering the increase in rates have been lower air freight costs, as passenger air travel hit an all-time low over COVID-19 fears, leading many companies to convert passenger jets into cargo jets to help stay afloat.

So what does the rest of 2020 hold for trucking? ATRI is forecasting overall volume to be down 10% for the entire year but it’s difficult to predict what the rest of the year has in store. DAT Solutions has projected that back-to-school shopping and home construction projects should help the dry and flatbed sectors but manufactured goods remain down. On the other hand, COVID-19 cases are rising in some parts of the country, causing some cities to shut back down. Another factor to monitor will be the level of rising retail warehouse inventories, as high inventory-to-sales ratios tend to mean lower truckload volumes.

Learn more about FNBO's transportation financial solutions.

About the Author

Aaron Martens is a Vice President in the Commercial Banking Group for FNBO. In this role, Aaron supports closely-held and family-owned businesses with comprehensive banking services. Aaron has been with the bank for over 15 years, with the majority of his experience in commercial banking. Aaron received a BSBA from the University of Nebraska Lincoln and an MBA from the University of Nebraska Omaha.