Freight and Covid
COVID-19 was not the first disaster to disrupt the freight industry. Following the 2008 economic crash few people held purchasing power and freight companies took major hits. With the Ebola outbreak, there was an initial concern of transmitting the disease through shipping, which reoccurred during COVID-19. These and other disasters significantly affected processes and procedures for long-distance shipping, but eventually, systems adjusted and the industry reached a new normal. Today’s freight industry is going through the same process. COVID-19 presented unique challenges and exposed weaknesses in the current system, but each challenge will be dealt with until the freight industry reaches a new and improved normal.
This post will look at the Past Reactions to Pandemics, Challenges Created by COVID-19, and Future Effects of COVID-19
Past Reactions to Pandemics
The freight industry has experienced similar outbreaks to COVID-19 and learned a lot about changes that needed to be for consumers to feel safe. We learned from the Ebola epidemic that these viruses cannot be effectively transmitted through shipped goods. Even though COVID-19 has a shorter incubation time (14 days) than Ebola (21 days), consumers were still hesitant at first to order eCommerce or took extra measures to sanitize all their goods (1). The way the freight industry ensured the cleanliness of freight in transit was by conducting crew and employ screening. Freight has an advantage over airplanes where people can make connecting flights and mix in with others that may or may not have been screened, but with freight going from port to port it is easier to control who comes in contact with goods and enforce screening/testing at each port (1).
In reaction to the COVID-19 pandemic, global demand for freight decreased, but local deliveries of less than 100 miles have increased by 100% as residents have sheltered-in-place and retail closed (2). So even though global shipping initially took a hit, the local business saw a surge in consumers, and freight, trucking, and other transport industries were still necessary. The freight industry majorly shifted to meet the new demands of consumers trapped at home.
TLDR
- Developed system to test/screen personnel at transfer ports
- Learned it was easier to control the number of people that come into contact with shipped goods.
- Freight by rail, truck, and sea had fewer human contact points than airplanes.
- Global commerce usually decreases, but local trade increases
- E-commerce has increased in every recession
- In this recession, local deliveries of less than 100 miles have increased by 100% (Due to Covid)
Challenges Created by COVID-19
Shipping demands immediately spiked due to Covid-19. Suddenly millions of people around the globe needed medical supplies, but most products are not created on location. Unexpected quantities of raw materials and finished medical supplies had to be shipped to treat the rising numbers of infected patients. Panic buying and an increase in e-commerce also contributed to the surge in shipping demands(3).
Several shipping companies had to make do with reduced facilities and personnel. Many rest stops and parking facilities commonly used by trucking industries were affected by state shutdowns (4). Additionally, at-risk employees were unavailable to work their usual shifts. Shipping was deemed an essential service so freight companies could not shut down entirely, but having less personnel made dealing with shipping demands even more difficult (5).
In the unique atmosphere of Coivd-19, each shipping company was not affected equally or simultaneously. Disruptions differed regionally depending on local needs, the severity of the outbreak in that area, and disruptions occurring in other parts of the supply chain. For instance, the maritime shipping industry shrunk by over 4% while the trucking industry maxed out (6). Coordinating freight services to use them efficiently was difficult and the inherent inter-connected nature of freight meant that a single disruption had long-reaching effects (7)(8).
TLDR
- Medical supplies became a huge demand when Covid hit
- Unexpected amounts of raw materials were needed for medical supplies
- Panic buying also created a surge in shipping demands
- Many Trucking rest stops and parking facilities were shut down
- At-risk freight employees weren’t available for usual shifts
- Less personnel made dealing with shipping demands even more difficult.
- Freight transportation was deemed as an essential service. It did not shut down.
- Disruptions differed regionally depending on local needs
- The severity of the outbreak in that area
- Disruptions occurring in other parts of the supply chain.
- For instance, the maritime shipping industry shrunk by over 4% while the trucking industry maxed out.
Future Effects of COVID-19
The U.S. freight industry seems to have handled the COVID-19 pandemic rather well. This is due mostly to the fact that in the industry, there is limited person-to-person interaction. However, the question remains as to how the virus will impact the shipping industry in the long term. McKinsey and Company, a worldwide management consulting firm based in the U.S. shed some light on the subject through internal research. This research centers on intra-U.S. freight (road, rail, and water shipping), and has the goal of modeling the recovery of the freight industry within the U.S. Their model is based on an economic outlook derived from nine potential COVID-19 scenarios. This model was then applied to a focused look on the freight and shipping industry, considering factors unique to the industry that would affect its recovery. This research produced two key insights, first, full recovery of the industry will take about three to five years. During this period, companies will be tested, and some may have to close their doors. Second, recovery in the industry will be different according to the types of goods being shipped and the mode of transportation used. For example, steel shipped by rail may recover better than electronics shipped by air freight. The rail many even recover to profits exceeding pre-pandemic levels while the air freight may struggle for a long time. If companies can spot the opportunities within the recovery, they have the chance to increase their own value, which can help the industry as a whole.
McKinsey and Company see a scenario where the coronavirus recurs, and GDP does not fully recover until 2023 as the most likely outlook. Using this assumption and narrowing their research further, they predict that the industries most likely to grow will be services (including healthcare), agriculture and food, and electronics. The industries most likely to see a decline are chemicals, basic commodities, oil and gas, machinery and appliances, misc. manufacturing, metals, coal, and wood, paper, and textiles. Therefore, the modes of transportation that are used to carry the materials listed above, will likely also see growth or decline. For example, lion’s share of the trucking industry (39%) deals mainly with the services and agriculture, and food industries. Therefore, it can be seen that the trucking industry will grow along with the other industries. On the other hand, 41% of the rail industry deals with the coal, oil, and gas industries. These industries are suspected of declining in output over the coming years, and therefore so is the rail industry.
As a direct result of the pandemic, many large industries that normally would have provided a lot of growth to the transportation industry are estimated to decline in value. On the other hand, other industries are expected to grow over the coming years. Overall, however, there seem to be many more industries that have traditionally relied on the freight industry that are going to be in decline, having a direct negative effect on that outlook of the freight industry. It is important to remember that this research is very much based on assumptions. The assumptions made are as accurate as of the data we currently have, but anything can happen. Currently, the outlook is grim, but things can change at a moment’s notice, as proven by the outbreak of COVID-19 (9).
Going Forward
Predictions of the freight industry’s future include: an increase in dedicated air cargo capacity, continuing cargo inspections, a steady rise of eCommerce, reconfiguration of global chains, and varying recovering strategies across countries. For increased dedicated air cargo capacity, airline industries are already repurposing passenger plans to serve as shipping aircraft. In the longer term governments may continue to uphold export restrictions for sensitive cargo (ie Medical supplies) along with Increased cargo inspections and cross-border control protocols. And prices of goods are most likely to increase with more restrictive shipping processes. The eCommerce market as mentions earlier will continue to grow and give businesses with robust digital capabilities to thrive on the online market. New investments should be made in the technology industry to adjust to post Coivd-19 times. Global chains will also have to be recovered because of flaws exposed when the world fell into a pandemic at unique rates. Additional warehouse capacity or more local, short shipping routes may be investigated. Finally, recovery will look different in each country and subsector of the freight industry. Predictions on the speed of recovery will all depend on the length of lockdowns and the overall economic crisis. The business that will best be able to survive COVID’s effect on the market is large, diversified businesses.
TLDR
- Dependent on the types of goods being shipped
- Dependent on the mode of transportation used
- steel shipped by rail may recover better than electronics shipped by air freight
- Industries likely to grow will be services (including healthcare), agriculture, and electronics, basic commodities
- trucking industry (39%) deals mainly with the services, agriculture, food
- Industries likely to decline: chemicals, oil, and gas, machinery and appliances, misc. manufacturing, metals, coal, and wood, paper, and textiles.
- 41% of the rail industry deals with coal, oil, and gas.
- The freight industry will not be in full force until industries are producing at full force.
- Overall, Coronavirus has a direct negative effect on the outlook of the freight industry.
Sources:
1. “Ebola impact: Shipping delays, health screenings, preventive measures”
2. “Global Mobility Response to COVID-19”
3. Texas A&M Transportation institute
4. U.S. Senate Committee on Commerce, Science, and Transportation,
a. https://www.commerce.senate.gov/services/files/1BB292D4-6FAE-4078-A1B5-48BF40FF660B
5. Deloitte
6. United Nations Conference on Trade and Development (UNCTAD),
a. https://unctad.org/news/covid-19-cuts-global-maritime-trade-transforms-industry
7. “Building Supply Chain Resilience After a Pandemic”
8. “Transportation in the Face of Communicable Disease”
a. https://www.nationalacademies.org/trb/blog/transportation-in-the-face-of-communicable-diseas
9. “US freight after COVID-19: A bumpy road to the next normal”
10. “US freight after COVID-19: What’s next?”
