Nobody expected April to be a good month for freight volumes, and it wasn’t. Almost all the economic indicators, from industrial production to retail sales, housing starts to unemployment claims, were headed in the wrong direction in April. The amount of tonnage hauled dropped significantly, along with spot freight rates.
In Arlington, Virginia, American Trucking Associations (ATA) reported a 12.2% drop in its seasonally adjusted For-Hire Truck Tonnage Index. The index came in at 119.5 in March, meaning that March freight levels were 19.5% higher than the 2015 average of 100 that forms the base of the index.
In April, that tonnage index fell to 104.9. That’s 11.3% lower than April of 2019.
“April’s monthly decline was the largest in 26 years, said Bob Costello, ATA chief economist. “Considering that April factory output and retail sales plummeted, the large drop in truck freight is not surprising.”
Costello pointed out that fleets hauling groceries and those hauling for online retailers generally did better than average, while others were hit harder.
“Some fleets witnessed very large declines in freight last month,” he said.
The ATA index is comprised of data reported by ATA member carriers and generally reflects contract freight hauled by medium to large carriers.
The Cass Freight Index, which encompasses freight data from rail, ship, pipeline and other shipping modes as well as trucking, fell 15.1% in April from March tonnage, and 22.7% from April 2019.
The Cass Trucking Index wasn’t quite as bad, declining 7.0% compared to April 2019. The Cass report wasn’t bullish on the coming months.
“Consumer confidence remains very poor into May, as there is uncertainty over what happens next,” the report read. “We’ve never seen anything like this, so it is impossible to predict exactly what it will mean for freight as we move through the year,” was the conclusion.
ACT Research released a report showing that orders for commercial vehicles and the engines that power them have plummeted.
“Freight demand has fallen, global supply chains have been severely disrupted, and even before COVID-19, the world was shifting toward increased e-commerce,” noted Kenny Vieth, ACT president and senior analyst. “The pandemic’s impact has only hastened that trend. In March, e-commerce recorded a 50% increase in home goods sales, and a more than 200% jump in online food deliveries.”
The news wasn’t any better at FTR, another industry analyst and advisor. In a May 18 “Monday Morning Blog,” writer Steve Graham said, “April was an awful month for the economy.”
He noted that U.S. industrial production fell 11.2% in April and manufacturing fell even further, 13.7%. At the same time, retail sales fell 16.4% in the month, following an 8.3% decline in March. The two hardest-hit areas, the blog reported, were furniture sales, which declined 58.7%, and electronics and appliances, which dropped 60.6%.
Graham’s blog also pointed to the high unemployment numbers as a further depressor of sales, saying, “Millions of Americans will be cautious about big purchases for some time.”
Indeed, more than 38 million Americans have filed for unemployment since February. The unemployment rolls should begin shrinking as the economy opens. However, many retail businesses that are opening face occupancy restrictions, and customer numbers may not return to normal for quite some time.
As freight volumes fell, freight rates followed suit and, like volumes, may have reached bottom in April. DAT’s “Trendlines” report showed a 79.6% increase in loads posted on the company’s load board in May. Despite being 8.5% lower than May 2019, the April-to-May increase not only reflects more available loads but will also drive rates higher.
The same report showed an 11.8% decline in the number of trucks posted, possibly a reflection of small carriers parking their equipment in response to low freight rates. None of the trailer types (van, flat and reefer) have come anywhere near March rates.
Spot freight rates for dry van and flatbed were lower than April rates, 2.4% and 1.7% respectively; however, rates began climbing in the second half of May. Refrigerated (reefer) rates climbed 4.6% compared to April, probably due more to seasonal crop harvests than economic activity.
On June 3, the U.S. Census Bureau’s Report on Manufacturer’s Shipments, Inventories and Orders began with the words, “Due to recent events surrounding COVID-19, many businesses are operating on a limited capacity or have ceased operations completely.” The numbers that followed weren’t any rosier.
After falling 11.0% in March, new orders for manufactured goods fell another 13.0% in April. Durable goods, those that generally remain in use for three years or more, fell 17.7%. The biggest loss in the durable goods category came from transportation equipment, which fell 48.3%. New orders for nondurable goods fell 9.0%, an indication that consumers are spending more on day-to-day items but aren’t investing in vehicles or appliances. Commodities such as petroleum and coal are also considered nondurable items, and helped pull the overall numbers down.
According to the report, the number of shipments of durable goods dropped $42.4 billion, or 18.2%. April was the fourth consecutive month of declining shipments and, just as in the orders category, vehicle equipment lead the way. Shipments of nondurable goods fared better but still declined, dropping by $21.2 billion or 9.0%. Petroleum and coal products produced some of the heaviest declines.
If there was any good news, it was that the unfilled orders-to-shipments ratio rose, from 6.7 in March to 7.62 in April. At the same time, inventories fell 0.4%, or $2.6 billion. Unfilled orders and low inventories can be an indicator of higher manufacturing and shipping activity to come as the economy reopens. That’s assuming businesses return to the same inventory levels as before the pandemic began. Some may choose to maintain lower inventories on the premise that the economy, and their sales, will not return to previous levels for a while.
As the calendar turned to June and sales began to pick up, demonstrations that began in Minneapolis to protest the death of George Floyd while in police custody have spread to cities across the nation, some with violent results. Curfews, closures of interstate highways by protesters, and fear of crowd violence have caused some businesses that were reopening to close down until the violence ceases. Even when businesses and distribution centers are open, some drivers have refused to enter metropolitan areas because of safety concerns.
Whether the protests, and the nation’s reaction to them, will be enough to dampen the economic recovery begun in May remains to be seen.
“As the nation starts taking small steps toward reopening, we should see some modest improvements in the freight market, but the size of April’s decline gives us an idea of how long the road back may be,” Costello said.