When the Coronavirus took its dive into the states early this year and stay at home orders began to sweep the country, the sudden pause in the economy struck the truck market hard. The only movements over the road were for essential goods, causing many carriers, owner-operators, and small transportation companies scrambling to find work. Initially, the truck market plummeted as shippers were forced to close their doors and begin working from home. Lack of overseas containers left the ports dry and carriers empty handed. Then, as demand for essential goods increased and businesses began to reopen from quarantine, the market suddenly flipped and freight rates skyrocketed. In this article, we are going to discuss the main factors that have impacted this sudden shift in market rates.
1. Low Capacity
You’re probably hearing this repeatedly from your carriers and brokers. “The market is tight right now” or “capacity is limited.” But what does all that mean? When the market is tight, it means that there are more shipments available than there are trucks to move them. There are multiple factors causing capacity to tighten during the pandemic.
The initial impact of the pandemic left many owner operators out of business. “80 percent of owner-operators and small fleets do not have any plan in place for managing operations during natural disasters” (https://truckingresearch.org). Some carriers have simply chosen to “wait it out” to avoid the negative impacts of the pandemic on their businesses. Drivers who are older or have underlying health conditions are not available to haul loads because they are considered higher risk. Even the fear of contracting the virus has kept many drivers at home. A combination of all of these things have contributed to lower capacity of available trucks.
2. High Demand
Truck drivers quickly became moderate to high risk employees during the pandemic as they put their lives on the line to deliver essential goods. “For long-haul truck drivers, potential sources of exposure include having close contact with truck stop attendants, store workers, dock workers, other truck drivers, or others with COVID-19” increasing their risk of contracting the virus (https://www.cdc.gov/). Many carriers charged higher rates to even go to areas where the virus had spread at a higher rate. Bottom line: greater risk results in higher prices.
At the beginning of the pandemic, many businesses implemented “stay-at-home” orders to help flatten the curve of the virus. During those first few months of quarantine, shipping was limited as government mandates only allowed the movement of essential goods over the road. When mandates were loosened and businesses reopened, there was a surge of shipments as shippers rushed material out the door to help with the backlog of customer orders. The sudden volume of shipments left the truck market in flux. The demand for trucks and transportation quickly increased and so did the shipping costs.
Shippers were also forced into competition with one another. Businesses shipping essential goods consumed more volume than normal and were able to pay premium prices to meet the temporary demand. Toilet paper, paper towels, gloves, masks, disinfectants, hand sanitizers, and bleach are all examples of essential goods that commanded a premium shipping price. These premium loads were, and remain, more desirable for a carrier, simply because they pay more money. In order for shippers to secure a carrier for their shipments, they had to cough up the money to compete with other higher paying loads, driving up the overall rates in the truck market.
3. Stay at Home Orders
Everyone is encouraged to stay home if they are feeling sick, including truck drivers. If a driver is exposed to the virus, a 14-day quarantine is expected. Following these safety precautions limits the number of trucks on the road, leaving many carriers unable to operate at full capacity. However, staying at home does not necessarily mean someone is feeling sick. As schools reopen in a virtual, at-home setting, parents staying at home becomes a necessity. Some may not be able to be on the road because they have to be home to watch their children. For a truck driver, working from home is not an option.
With some states reopening from stay at home orders, and others remaining closed, a disruption to the normal freight equilibrium has developed. Some carriers opened back for business earlier than others. While some carrier dispatchers have continued to work as normal, allowing the drivers to continue on the road, other dispatchers are unable to do the same for their drivers. This has created disruptions in where trucks are and are not available.
4. Limited Staffing
Carrier capacity isn’t the only problem plaguing the market’s prices; accessorial – such as layover and detention – are also to blame. One of the main reasons for the many delays affecting the industry is that companies have spaced factory employees farther apart to comply with social distancing guidelines and prevent the spread of the virus. This process has slowed down production lines by reducing the number of employees that can physically be present on the factory floor, resulting in reduced productivity at all levels. The production floors aren’t the only spaces feeling the crunch; loading docks have also had to limit contact of employees, causing longer loading and unloading times and affecting the number of trucks that can be loaded or received in one day. With these delays, combined with shortened shipping and receiving hours, there is little to no flexibility for late or missed appointments, meaning an almost non-existent window for error in the always unpredictable journey over the road.
With already shortened hours and limited staffing, any employee coming into contact with or testing positive for COVID-19 becomes detrimental. Entire departments or plants may need to shut down for quarantine or sanitation. Once cleared for reopening, production is pushed into overdrive again to make up for the backed up demand, again affecting the market’s equilibrium. With all of these delays, accessorial charges such as detention and layover are up, increasing the overall cost of shipments.
5. Last Minute Decisions
Another contributor to the heightened rates is caused by shipper expectations. With capacity disruptions, “more freight that would normally move by contract carriers has moved to the spot market” (www.dat.com). When spot market rates are higher than expected, shippers wait longer to book freight, hoping for the cheaper options to become available. Suddenly, time becomes an important factor and the original carriers are no longer available at the quoted rate. Shippers now have to make last minute decisions to pay higher rates than what they were originally quoted. In this type of freight market, it’s often best to take the options that are readily available and book freight in advance. Just like the shippers, carriers are also “shopping around” for higher paying loads, or may be offered last-minute, premium paying loads that they will take in lieu of a lower paying load.
During these trying and unprecedented times, it’s best to rely on market experts and reliable industry news sources to stay knowledgeable and up to date on conditions affecting transportation across the country. Also, communicating with your trusted carriers and broker contacts is important so everyone can make it through these unpredictable times with partnerships – and bottom lines – intact.
Sources
https://www.dat.com/blog/post/covid-19-disrupts-normal-seasonal-trends-on-spot-market
https://truckingresearch.org/2020/05/05/joint-research-confirms-covid-19-impact-on-trucking/
https://www.cdc.gov/coronavirus/2019-ncov/community/organizations/long-haul-trucking.html
