TORONTO, Ont. – Staggering job losses. Evaporating freight
demand. And much of the global economy ground to a halt. Those are some of the
headlines keeping fleet executives up at night and wondering what the short-
and long-term future holds, as the world struggles to contain the Covid-19
Baseball legend Yogi Berra was once quoted as saying “It’s
tough to make predictions, especially about the future,” and industry
forecaster FTR’s chief economist Bill Witte echoed that statement on an April 9
webinar, saying that never has that been truer than it is today.
An unusual recession
The coronavirus-sparked recession is difficult to predict,
because it’s unlike any recession that’s occurred in the past, Witte explained.
“I don’t think this is a normal recession recovery
situation. It’s not a business cycle event, it’s a completely artificial event,”
he said. As such, looking to past recessions for guidance – even the Great
Recession of 2008-2009 – is not useful.
FTR breaks the current economic environment into three
phases: the shutdown; containment; and the restart. We are now early in the
containment stage, and the longer this phase lasts, the slower the recovery
will be, Witte predicted.
“If the containment period is short, the restart could be a pretty
rapid event,” he added. “We are working on the assumption the restart is going
to take place sometime toward the end of this quarter.”
Initial unemployment claims in the U.S. have been off the
charts, with about 16.7 million Americans filing for benefits in the last three
weeks. “These numbers are really bad,” Witte said, but he gave reason for some glimmer
of optimism. The numbers are seasonally adjusted, which inflates them slightly,
and there has already been a decrease in “continuing claims,” meaning some of
those workers who filed early may already have been called back to work, possibly
thanks to U.S. government stimulus spending.
Still, FTR is predicting about 15 million private sector job
losses in the second quarter, with unemployment not likely to fully recover
until the end of 2021. This translates to an unemployment rate in the U.S. of
12.7% through the second quarter – worse than any quarter at the peak of the
Great Recession, and rivaling Great Depression level numbers.
The effect on freight
Soaring unemployment will naturally affect manufacturing
output and consumer spending, two key drivers of truck freight. FTR takes GDP,
expected to come in at -23.6% in the second quarter, and strips out services
while adding back in imports, to more accurately reflect the impact on truck transportation.
Once done, the numbers get worse, with FTR forecasting a -44.5% drop in the
goods transportation sector in the second quarter.
“We don’t see a noticeable jump until the fourth quarter,”
said FTR CEO Eric Starks, adding the trucking industry won’t return to
normalized levels until mid- to late-2021. “I think that’s a big deal for us to
Industrial production is expected to drop 24% in the second
quarter, and fall further in Q3 before seeing an uptick in the fourth quarter. Starks
said more plant shutdowns can be expected as the virus moves through the U.S. Midwest.
The good news, he said, is that stimulus spending in the U.S.
is allowing many businesses to keep employees on payroll and ready to quickly
return to work when the virus is contained. But since global economies are
grappling with the same challenges, Starks added exports won’t rebound quickly.
Here in Canada
Canada’s unemployment numbers posted April 9 were equally
distressing, with more than a million jobs lost in March.
The Conference Board of Canada reacted, commenting: “In the
first wave of Covid-19 related job losses, Canada lost over one million jobs in
March. This was the largest monthly employment decline ever and we expect even
more job losses in April as the full impact of mandatory closures and physical
distancing measures are reflected in the data. The initial job losses were
concentrated in accommodations, food service, retail trade and cultural
industries. April is likely to show a broader decline as more businesses scale
back due to mandatory closures and reduced demand.”
To put it in perspective, Canada shed just 426,500 jobs
between November 2008 and June 2009, at the peak of the Great Recession. The
Conference Board of Canada also pointed out the most recent job loss data reflects
numbers only up to March 21, meaning many more job losses will be seen in April
“We expect April’s job losses to be significantly higher
than those of March,” the organization warned.
The impact on rates
In its U.S. Rate and Volume Outlook report, ACT
Research lowered its rate forecast, warning a “cliff event” has arrived and
that spot market rates will drop more than 20% from March levels through April
“The pandemic has caused breakdowns in the economy not seen before
in our lifetimes,” said Tim Denoyer, ACT Research’s vice-president and senior
analyst. “Freight has adapted to past ‘new normals’ and emerged steady on a per
capita basis, and likely will again, eventually, but there are some
extraordinary swings coming in the next 12-18 months.”
However, he offered a glimmer of hope for the longsighted.
“Perhaps most interesting from our standpoint is the supply-side
effects, as lower demand for new equipment and downtime at the manufacturers
will reduce capacity significantly over the coming year, setting up a potential
capacity crunch when demand recovers,” Denoyer said.
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