There’s no denying it: COVID-19 will have a lasting impact across sectors and industries for years to come. Social distancing, enhanced health screening and the use of personal protective gear has changed how we work, shop and interact with each other. However, as stakeholders in each industry grapple with these new norms, and try to come to terms with them, some industries, notably transportation, are dealing with COVID on their own terms.
On their own terms
Almost no segment of society remains insulated from the impact of trucks and transportation. From commuters to consumers, and from supply chain logistics to moving home, one can barely escape the influence of public transport, heavy haulers and interstate moving companies. However, while many industries are changing for the better, it seems as though transportation is evolving on its own terms – and not all for the better:
- Designated as “essential” services across most of the developed world, big rig operators are at the front lines of the all-important supply chain. Any large-scale disruption to service, as a result of mass infections among drivers, could have a potentially devastating impact on the rest of society. Yet, trucking company owners and large corporate employers are not doing much to protect drivers. Longer drives, few available rest stops, and not enough PPEs to shield staff from getting infected are the hallmark of the industry.
- Clearly, owners of the big rigs and transportation companies are quick to spot an “opportunity” when they see one. Predatory pricing practices have pushed the prices of everything higher – from cabbage and corn, to toilet paper and tomatoes. One would think that severely declining oil prices would justify lower transportation costs. But no!
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| SOURCE: https://tradingeconomics.com/united-states/cpi-transportation | |
The proof is in the numbers, as indicated by the Transportation CP Index of leading global economies. One may (naively!) attribute the decline in the transportation CPI in European countries to an “European anomaly”. However, when the CPI for North American jurisdictions, like Mexico and Canada, show a comparatively steeper (and precipitously declining!) drop than the US transportation CPI – clearly, something is wrong!
And along with higher prices, transportation company customers face longer delivery times too. The fact that there are stricter inspection protocols at border crossings, and greater than “normal” loading/unloading times, may explain some of those delays. However, the inability of trucking companies to appropriately respond to the pandemic, by increasing the number of trucks and drivers on the road, also aggravates delivery lead times.
3. Which brings us to the “opportunity” that this imbalance in demand for trucking, and the supply for trucks and truck drivers offers. Whether they’re large freight companies, or comparatively smaller interstate moving companies as showcased here, the knowledge that their customers have a reduced set of choices – no thanks to COVID-19! – is likely fueling some of those predatory practices.
When transportation industry customers, in this case grocers, shopping malls, restaurant chains and retail shops, have little or no choice, they become price takers and not price makers! Alternate transportation modes, like rail or barge, would likely be more expensive or time consuming. And the transporters know that. So, while the coronavirus rules the roost, transportation companies continue to make hay!
Longer term post-COVID impact
There’s no denying the fact that COVID has put a dent in the volume of business that the transportation industry typically enjoys. It’s only logical. Shoppers aren’t buying, so suppliers aren’t stocking…so manufacturers aren’t producing…and truckers aren’t delivering! However, while volumes will probably pick up gradually, it’s very unlikely that the cost of shipping by truck will come down. Here’s why: The bottom line!
As the current crisis drags on, it’ll continue to eat into revenue, margins and profits of the transportation industry.
The Dow Jones Transportation index (an indicator of the general profitability of the industry) has dropped precipitously since the beginning of the crisis – from nearly 11,000 in early Jan to around 8,400 today. That’s a decline of over 23%! So, why would the industry respond by dropping shipping costs? And there’s no doubt then, that there’ll be other longer-term impacts from COVID on the industry.
One clear loser is likely to be climate change and the green initiatives that some transportation businesses were considering. With the industry bleeding cash at such a high rate, there are signs of storm clouds hovering over the industry. In these circumstances, to stymie the cash hemorrhage, “non-essential” initiatives – such as the switch to electric vehicles – are likely to be one of the first victims in the post-COVID era.
So, because it’s “convenient” (and profitable in the short-term) to not take any action on those projects, the transportation industry will continue to stick to fossil fuels in a post-COVID world.
No shortage of sales pitches!
Though the transportation industry in general will face a lot of flack for their overall (poor!) response during the COVID crisis, it seems one segment of the industry will continue to flourish. As pent-up demand for industrial, commercial and residential moves starts chomping at the bit for fulfillment, interstate moving companies continue to make their sales pitch to desperate customers. These companies are ideally placed to take full advantage of the typical sellers’ market.
With many truckers unwilling to make trips beyond “safe” jurisdictions, anxious customers of the remaining few moving companies could well fall prey to some of the predatory practices highlighted above. To prospective clients, there’s just one piece of parting advice: Buyer beware!