Outlook positive for trucking industry; e-commerce trends might be ‘new normal’

The societal and economic challenges of 2020 are expected to contribute to a positive outlook for the trucking and transportation industry in 2021, according to FreightWaves research. Meanwhile, the online shopping trend accelerated by the COVID-19 pandemic could become “the new normal,” an industry executive said.

In a recent webinar hosted by the Transportation Research Board, Adam Colon, director of operations at Lowell-based carrier J.B. Hunt Transport Services Inc. explained how consumer behaviors have changed during the pandemic. COVID has encouraged online shopping and increased shipping demand, said Colon, noting that a premium has been placed on convenience while consumers find products that can be shipped quickly to their homes.

“The new normal has definitely accelerated the convenience model,” Colon said. “Consumers want their product as soon as possible. I think we were already headed this way. I think this could be the new norm of shop.”

Changes to consumer activity, industrial production, housing starts and federal stimulus have led to “one of the most significant nationwide levels of freight volatility,” according to research by JT Engstrom, chief strategy officer for FreightWaves.

The split for services and goods has historically been 67/33, but it has shifted to about 60/40, which is good for the transportation sector as spending on goods contributes to more freight than services, the research shows. This can be attributed to a strong housing market with more people moving from cities to rural areas. Also, e-commerce spending rose as more people stayed home amid the COVID-19 pandemic and purchased goods to be shipped, improving the outlook for final-mile delivery.

The first half of 2020 “was shrouded with the uncertainty of the pandemic,” but the second half of the year marked growth in the Purchasing Managers’ Index (PMI), which is a “strong leading indicator” going into the first half of 2021, Engstrom said. Amid the freight volatility, demand has been strong and a positive for 2021.

Capacity was a challenge leading into 2020 and tightened throughout the year as a result of pandemic fears and caution to acquire capital assets, according to the research. Attracting drivers to the industry was a struggle in part because of health concerns but also because of the generous levels of federal aid, the research shows. Asset purchases have ramped, but they have yet to meet demand as volatility in the spot market has led shippers to seek stability in shipping capacity.

Net orders for Class 8 trucks, the largest truck class, increased 146% to 42,200 units in January, from the same month in 2020, according to preliminary estimates from ACT Research. The January orders, which includes those across North America, fell 17% from December 2020.

“At this introductory pass at 2021 commercial vehicle data, the consumer economy lacks the stimulus-fueled robustness that characterized spending into early (fourth quarter),” said Kenny Vieth, president and senior analyst for ACT Research. “Even as consumers look less hearty – at least in the short-term – manufacturing sector indicators show that the industrial economy is shaking off the dust of two years of tepid activity. The slower economic expansion of the past two months is reflected in spot freight rates, which have trended lower since November. Some, but not all, of the pullback relates to seasonality, which was also reflected in January’s preliminary commercial vehicle net order data.”

As of Feb. 7, dry van and temperature-controlled contract rates are higher than spot rates for the first time in seven months, according to DAT Freight & Analytics. Spot rates remain flat and prices remain steady while shippers restock warehouses with spring inventories ahead of the Chinese New Year.

E-commerce giant Amazon recently created a program seeking to ensure it has ample shipping capacity, according to a recent FreightWaves article. Amazon recently launched an incubator to help people start trucking companies to haul freight for the company. The initiative is expected to be operational by the end of the second quarter and will provide business training and loans to help entrepreneurs start trucking companies, the article shows.

According to Engstrom’s research, asset-based full truckload carriers should expect to continue to see positive pricing trends and loads while less-than-truckload carriers can expect to continue to receive spillover freight from full truckload along with strong pricing.

Intermodal is projected to be positive as the industry and asset pool grow, but carriers must find the best areas in which to operate. E-commerce is a headwind for the sector with its lower service models in comparison to full truckload or less-than-truckload, according to the research. However, the increased capacity tightness in trucking is expected to benefit intermodal. Air freight and ocean shipping are expected to benefit from less uncertainty and volatility with the addition of heavy capital assets, increasing the confidence in cash flow opportunity.

The trends related to technology and data were strong leading into 2020, and the uncertainty and volatility throughout the year contributed to the need for greater technology use, the research shows. This includes digital freight matching systems, supply chain visibility, autonomous inventory storage systems, multi-technology integration platforms, real-time benchmarking data and asset tracking. The availability of venture capital is expected to increase the efficacy in technology investment, “which we anticipate being one of the most significant industrywide, high-impact trends over the next decade, above and beyond that which had been enjoyed through the first two decades of the century,” according to Engstrom.

In 2021, more deals are expected to take place. Capital markets were resilient in 2020 but were quiet with a collection of deals put on hold, bankers seeking market balance for COVID adjustments and creditors underwriting unique notes, he added. Market fundamentals are expected to be favorable and stable throughout 2021. As a result, more of the following are expected to take place: mergers and acquisitions, activity with public equity markets and refinancing. The benefits from these activities could lead to “a more aggressive operating landscape in which market participants gain more volume and pricing leverage, in addition to an increased ability to invest in organic growth,” Engstrom’s research shows.