How did the Pandemic Affect Freight Rates?

Thanks in large part to the shutdowns caused by the COVID-19 pandemic that began in March of 2020 and have shifted since, in varying degrees of severity and impacting a variety of regions, there was initially a severe contraction of nearly all business and consumer metrics. The most severe impacts lasted about 4-6 weeks, gradually rebounding as the strictest lockdowns were lifted, and some states in the US began to fully reopen as early as May of 2020.

However, the rebounds are not complete, and the effects have differed between the consumer and industrial sectors. Consumer sectors, for example, have been buoyed by additional unemployment benefits, stimulus checks, PPP loans, and the various benefits associated with the CARES act.

With most service industry based spending limited by restrictions, more consumer money was spent on groceries, and other “things” as opposed to experiences like travel, restaurant dining, sports, and the like. This led to a faster recovery in the consumer sector, and industries like real estate and home buying.  While the massive surge in consumer demand seems to have peaked for the most part in consumer goods, and things appear to be slowly but surely returning to normal, the same can’t be said for the industrial sector. Manufacturing, the largest share of freight movements, has yet to make the same kind of rebound that consumer sectors are experiencing.  As a result, spot markets have remained unpredictable.

For example, at the beginning of the pandemic shutdowns in March of last year, when panic buying of certain items, like toilet paper, paper towels, and other groceries was at its peak, rates were up significantly. However, that dramatic rise was followed by an extremely dramatic fall shortly thereafter, with rates dropping in mid-April and then rising again in late May and early June.

While rises in rates for spot markets have been steadily strengthening, and dry van volume and rates have increased significantly, the overall freight market has not recovered at the same pace. As retail markets experienced a significant and unprecedented reduction in inventories, the same was not to be said of the manufacturing side. Much of the freight market, particularly as it relates to food and grocery, is designed with restaurants and wholesale in mind.

As a result, with consumers largely avoiding restaurants and other venues where wholesale food items are typically found, and the volume was shifted to grocery stores instead. This created a large disruption in a freight and supply chain side that wasn’t set up for that- and that continues to struggle as a result.  Thanks to tighter capacities that resulted from the pandemic and varying effects associated with it, spot rates rose, and continued to do so to the point of exceeding even contract rates- a largely unusual development.

However, as higher spot rates and limited capacities continue, large fleets are presented with an opportunity to wield more negotiating power going into new contracts.   Capacity issues are likely to continue, which will have an ongoing effect on freight rates. Carriers have been slow to add back drivers, with demand surges remaining uncertain, and economies slowly recovering, and vaccine roll-out beginning to take effect. There are additional impacts as well that have led to the shortage in drivers, including federal assistance with unemployment, social distancing rules making licensing more drivers a slower process, and retirements of older drivers due to higher risk categories.