COVID-19

A freight time to be in shipping

Sabri Ben-Achour Dec 21, 2020
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A truck carrying a cargo shipping container drives across a bridge in the Port of Long Beach on Dec. 14, 2020. Patrick T. Fallon/AFP via Getty Images
COVID-19

A freight time to be in shipping

Sabri Ben-Achour Dec 21, 2020
Heard on:
A truck carrying a cargo shipping container drives across a bridge in the Port of Long Beach on Dec. 14, 2020. Patrick T. Fallon/AFP via Getty Images
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So many people had such high hopes for 2020. “I was hoping I would take some time during summer, travel with some friends,” said Jesse Ng in Minneapolis. Ken Staffey in Bridgeport, Connecticut, “was supposed to be in Japan.” Kris Banks in Houston “had a whole trip to Andalusia planned.”

What they — and many of us — did, instead? Shopped online, of course.

“Yesterday, online, I bought a Dr. Fauci Christmas ornament,” said Staffey. For Ng, it was “computer peripherals like keyboards and mice.” Banks added to his knits collection. “Like, I have so many sweaters now, even though I live in Texas and it’s usually like 75 degrees in December.”

The Dr. Fauci Christmas ornaments, the computer keyboards, the sweaters — they all had to be moved from point A to point B. Which has meant that in recent months, it has become a great time to be in the shipping business.

“I’m a trucking company but I’m a very small trucking company ’cause it’s just me and my truck,” said Chad Boblett, a trucker in Lexington, Kentucky. 

According to shipping broker DAT Freight & Analytics, in November, there were 4 1/2 truck loads needing to be shipped for every truck out there. That’s double what it was last year. For refrigerated freight, there were 1.7 loads waiting to be shipped per truck, an all-time low. In November 2019, there were 5, and in November 2020, there were 9.4.

“It doesn’t matter who you are. If you got a truck and you driving, there’s somebody out there who’s wanting to give you some money to do it,” said Boblett.

Capacity has begun to loosen in December, but rates remain high, by historical standards. The national average for “spot rate,” meaning, essentially, last-minute delivery jobs, was $2.45 per mile in November 2020.  It was $1.60 in November 2019.

“Yeah, freight rates are experiencing a surge like they have never experienced before right now,” said Tim Denoyer, a senior analyst at ACT Research. “Rates for the truckload spot market are currently up 40%-50% over a year ago.”

Rates have been skyrocketing for months — they’ve been setting records since July. 

Part of the explanation for what is going on is that many businesses have had to rebuild inventories. “There was a big destocking of inventory at the beginning of the pandemic, and so there’s been this significant need for restocking at the retail level,” said Denoyer.

The production of new trucks was interrupted as well, so as old trucks have left the nation’s freight fleet, new ones have not replaced them at rates they normally would, said Denoyer. 

There were fewer truck drivers available, as well. “Truck drivers have been very resilient and have kept the economy running. But well over 100,000 lost their jobs during the shutdown in Q2, so we have a very tight job market,” Denoyer said. The average age of a truck driver is around 55, he added, and many may have been fearful to return to work.  “There are a few other unusual factors — extended unemployment benefits and social distancing at driver schools, which has reduced ability to produce drivers,” he said.

But there’s also something more complicated going on. It’s not just that we are suddenly buying Dr. Fauci Christmas ornaments. It’s that the pandemic has thrown the entire shipping system out of whack. 

Despite all the online ordering, overall freight is down, explained Dean Croke, principal market analyst at DAT. “We haven’t had catering, restaurants volumes have eroded away 90%. Colleges — all those areas that take huge volumes of food have been down,” he said.

There have been winners and losers. “Dry van and refrigerated carriers have been doing particularly well because of all our consumption of food, beverage, retail consumer goods and things we buy online,” he said.  Manufacturing, on the other hand, has been a drag on freight. “We haven’t been building air-conditioning ducts and hauling tractors around, because we’re not building as much as we would normally build. Because of the general economic outlook,” Croke said. 

“As the pandemic rages and a city goes into lockdown, consumption increases but production decreases. And that means that there’s more loads going in and less coming out and more empty miles for trucks, and you get this imbalance,” according to Croke — and that has distorted prices in the freight market.

Shippers have to cover costs for the miles where they carry a lot of stuff, and the miles back where they may carry nothing. And refrigerated trucks bringing in food aren’t right for bringing, say, sweaters. 

The sustained increase in shipping costs has put a strain on some businesses. “It obviously has an impact on the business,” said Stuart Landesberg, CEO of Grove Collaborative, which sells sustainable home and personal care products (think concentrated detergent.) Landesberg says he’s had to eat the cost of higher shipping. Though, in his case, his products are designed to take up less space and carbon footprint, so the price hikes in shipping have less impact.

“The price increases are painful, but I think a small cost to pay for the societal benefit of keeping so many folks safe,” Landesberg said.

Shipping prices are expected to remain high well into 2021.

COVID-19 Economy FAQs

Millions of Americans are unemployed, but businesses say they are having trouble hiring. Why?

This economic crisis is unusual compared to traditional recessions, according to Daniel Zhao, senior economist with Glassdoor. “Many workers are still sitting out of the labor force because of health concerns or child care needs, and that makes it tough to find workers regardless of what you’re doing with wages or benefits,” Zhao said. “An extra dollar an hour isn’t going to make a cashier with preexisting conditions feel that it’s safe to return to work.” This can be seen in the restaurant industry: Some workers have quit or are reluctant to apply because of COVID-19 concerns, low pay, meager benefits and the stress that comes with a fast-paced, demanding job. Restaurants have been willing to offer signing bonuses and temporary wage increases. One McDonald’s is even paying people $50 just to interview.

Could waiving patents increase the global supply of COVID-19 vaccines?

India and South Africa have introduced a proposal to temporarily suspend patents on COVID-19 vaccines. Backers of the plan say it would increase the supply of vaccines around the world by allowing more countries to produce them. Skeptics say it’s not that simple. There’s now enough supply in the U.S that any adult who wants a shot should be able to get one soon. That reality is years away for most other countries. More than 100 countries have backed the proposal to temporarily waive COVID-19 vaccine patents. The U.S isn’t one of them, but the White House has said it’s considering the idea.

Can businesses deny you entry if you don’t have a vaccine passport?

As more Americans get vaccinated against COVID-19 and the economy continues reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.

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