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The U.S. Freight Post-COVID-19 Outlook

The pandemic created changes for supply chain and manufacturing partners. Some changes were predictable and happened quickly. And others were complicated and more gradual.

While all carriers were not affected in the same ways, they were and will be affected in some capacity. Some business owners are facing a changing workforce, depleting liquidity, and the need to reinvent their core offerings to meet essential consumer needs. And other organizations are dealing with fluctuations and freight statistics are showing high variations with more to come.

And changes are still happening. But as we hit a point in this pandemic where we are looking forward, we are faced with two high-level questions we must answer:

  1. How will these changes affect the volume of freight being transported?

  2. What will be the economic impact to the supply chain industry over the next 5 to 10 years?

While tonnage was high during the months of March and April, experts viewed this as a reflection of consumers rushing to buy essential items prior to the shutdown. So with demand being so erratic and capacity surging and dropping based on customer mode and goods profile, it is challenging to create a clear picture of what the future holds.

Insights Beyond “Regular” Data Trends

To piece together what the future may look like, we must look beyond the “regular” data trends that are traditionally used to predict cargo volumes. For example, Global Management Consulting Firm, McKinsey and Company, published supporting data and cite they found that “there is no economic rule of thumb that freight growth will track economic growth after a crisis”. Instead, the research indicates four underlying factors that determine the course of freight growth in the US after a major crisis.

With that, let’s review the dynamics and how they may play a role in the overall US freight outlook after COVID-19.

Factors Affecting the Outlook

1. The Rise of eCommerce

It is no secret that consumers are ordering products and goods online at a record pace. With stay-at-home orders hitting almost all of the U.S. at some point, consumers turned to the Internet to get what they needed.

Consider the following:

  • The number of digital buyers worldwide is expected to reach 2.05 billion in 2020, accounting for a quarter of the world population. This number was at 1.32 billion in 2014 and is estimated to reach 2.14 billion by 2021. Reasons like convenience and cost-savings are prompting people to adopt ecommerce, while factors like faster Internet speeds and cheaper devices are facilitating this process. (Statista)

  • By 2040, around 95% of all purchases are expected to be via ecommerce. (Nasdaq)

These changes in retail commerce shift traditional B2B supply chains to small at-home deliveries. This is increasing small parcel volume and lowering shipments 1K pounds and larger. More warehouses are needed across the country to accommodate quick delivery times and meet consumer expectations. We don’t know how much of this business will shift back to brick and mortar when the crisis is over, however, the data shows that ecommerce is likely to grow.

2. Globalization of Supply Chains

Reshoring or near-shoring production have been hot topics over the last few months. How will the outcome of these decisions affect US freight volumes? Let’s look into history for a snapshot of how supply chains have been changed rapidly over the years...

Intra-US freight volumes have seen downward pressure throughout the last two decades. Offshore production to low-cost nations was on a steady rise through 2008. In 2009, the recession hit ending years of rising trade among countries. Labor costs outside the U.S. were increasing and the technologies manufacturers were utilizing began to cut domestic labor costs. The impact of the supply chain globalization on domestic US freight regulated.

COVID-19 has caused yet another major shift in global trade. Domestic manufacturers may choose to continue the usual pattern and start diversifying away from China, but still use Asia, Mexico, and other neighboring countries or begin reshoring more products to the U.S. Of course, the latter would have the most effect on US freight volumes and increase the demand for raw material and shipment moves.

3. Growth in Energy Production

The future of oil and gas is still a big unknown. The fracking explosion saw the U.S. production of oil and other petroleum liquids rise to the highest in the world. Demands for process inputs for energy solutions help boost or lower the need for truckload carriers and pipeline infrastructure. And coal production largely affects railroads.

Changing consumer preferences, improvements made to renewable energies, environmental regulations, and higher cost structures all look like they are turning away from coal post-COVID. They are currently seeing a decline in demand but the turnaround time on growth will greatly depend on our economic recovery along with other global economic factors.

4. Shift to a “Freight Light” economy

Over the past several decades, our spending habits have evolved into more rapid spending on services and experiences over traditional goods.

We also have a larger demographic of people older than 45 compared to that demographic just 30 years ago. Older consumers tend to consume more financial and healthcare-related services than their younger cohorts. On the opposite end of the age range, younger individuals are developing preferences for services such as food, coffee, and music and sporting events - all consume a large portion of Millennials and Gen Z’ers budgets.

As services-based industries continue to climb, there will be an additional slow down on freight growth.

Overview of the U.S. Freight Outlook

So, what does this mean for U.S. manufacturers and the domestic freight industry?

  • Ecommerce movements will continue to increase.

  • The shift to a more service-based economy does not seem to be slowing.

  • Energy production in the U.S. continues to remain slightly uncertain and trade flows will continue to fluctuate as organizations decide how to handle the next changes globalization will bring.

However, every company is different so these underlying economical trends will have different effects and outcomes. But understanding these concepts helps organizations anticipate where to look for opportunities and how to predict the challenges that may disrupt plans for growth.


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