June 8, 2020

LATEST ADVISORY MARKET UPDATE

After months of bad news, we are happy to hear there is a glimmer of light with an uptake of US employment rate in May.

After months of bad news, we are happy to hear there is a glimmer of light with an uptake of US employment rate in May.

However we know this is only a small glimmer of hope, with US Covid-19 rates continue at an alarming level, majority of the country still in lockdown, national unrest, the risk of a second wave of the virus causing another major nationwide lockdown, that could result in damage to industrial activity, indicating a full recovery remains far off and with many businesses likely to suffer for some time.

 
THE LAST FEW MONTHS

Following a dismal month of May for the trucking and transportation sector the May employment report gives slight hope for better market conditions in the coming months. It is too early, but we expect with this positive news Freight volumes will slowly start to come back, but it will take a while before volumes in the contract freight market are significant enough to drive higher spot rates.

The majority of US industry has been dormant over the last few months with the exception of food, consumer packaged goods, and healthcare-related industries.

Other US freight demand industries such as aerospace, metals, textiles, furniture, automotive, building materials, and electronics have been mostly shutdown or have experienced reduced production. 

 

CAPACITY SHORTAGE

Even though with freight market conditions today it is difficult to imagine a capacity shortage happening. However we do expect with the opening of the states there are a number of indicators that may cause a potential for capacity shortage pushing demand and spot market rates to increase in time:

  • During this Covide-19 time many trucking companies parked their trucks to reduce operation costs due to very low market rates,
  • Many drivers stayed home due to the health risk concerns and to not get caught in the nationwide demonstrations,
  • Commercial truck prices dropped, taking any equity in carriers corporate balance sheet with it, causing few will want to make investments in expansion of their fleet or start a new trucking firm,
  • With many trucking companies already having been reporting bankruptcies, bankruptcies and shutdowns are expected to continue to increase,  
  • Government unemployment stimulus is also expected to reduce the number of new drivers entering the workforce. (Where drivers can earn while at home spending time with their family, they have little incentive to take a job driving a truck that is likely to pay less and create potential exposure to the virus),
  • When truck driving schools do re-open they may find a lack of students due to the health risks of being in close proximity to a teacher and exposure to equipment increasing the risk to Covid-19 infection,
  • Majority of truck driving schools are also currently closed due to COVID-19 restrictions, the number of new drivers entering the marketplace will be dramatically reduced.
  • The hours of service rules will also likely go back to their original mandates. As drivers become harder to come by and less hours are available for drivers to be available.

With an aggregate of these situations, the industry may face a capacity shortage that will cause contract and spot market rates to rise. 

MOVING FORWARD

We continue to work with caution and expect a very slow recovery as the US economy begins to uptake. Election years in our experience also have had a negative impact on the freight market. There is uncertainty of whether the freight market has hit or is close to hitting bottom.

We expect, perhaps a further dip, then a slow and gradual upbeat in the coming months. We would like to stay with a positive outlook, with a caveat that there will not be any further disruptions to the global or US economy; if all elements are good, we do expect a slight surge in freight demand with the restart of the US economy.

The US economy is expected to restart gradually and with caution.

FINAL THOUGHTS

With the opening of the US economy we expect a gradual increase of freight demand, and with this we also expect freight costs are likely to increase in the contract market and spot market.

Shippers may have to lock in long term contracts at higher rates to cover themselves from paying higher contract rates than on the spot rates market.

Freight spot rates will also be expected to rise as the freight demand comes back online.

We do expect the US freight economy returning with demand for consumer packaged goods and groceries, with the largest segments of US freight tied to energy, agriculture and industrial activity leading the recovery. 

With no further disruptions, such as a second wave of the virus and the public unrest slowly begin to calm, we expect, a slow consumer confidence, to return to public activity such as concerts, sporting events, parties, and dining out. We expect these events with social distancing will create new employment opportunities.

The construction industry will also have to begin with new social distancing rules causing further job growth.

These industries will further compete for the same employee base as the trucking industry. Driver employment will likely stabilize, but with much higher wages for drivers. 

We also expect greater demand for domestically produced critical goods, emphasizing the importance of domestic sourcing of goods in the interest of supply chain risks for front line workers that will spur new domestic industrial and manufacturing demand, which will create more freight demand.

Carriers then will have the opportunity to maximize trucking rates and freight market rates and we expect a return to more stable market conditions in time. 

Get in touch and we’ll be delighted to discuss your specific needs.
If you prefer to make a more personal connection, simply give us a call, (888) 454-9022 to understand how we can support you.

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AMI

Ameri Management, Inc. (AMi) provides American businesses with high-quality, reliable, and affordable Freight Broker related services. Regardless of the type of business you run or the kind of products that need to be shipped, AMi has the right carriers for you. Our Freight Broker related services specialize in moving Full Truck Load (FTL), Less Than Truck Load (LTL), and Intermodal freight across all states in North America. Our years in the industry has helped us gain the experience, tools, and the dedicated carrier relationships needed to offer first-class Freight Broker related services.

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