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The U.S. economy is likely in the midst of its deepest recession since the end of World War II, when modern records that tracked the nation’s gross domestic product and unemployment rates were standardized.
That’s according to American Trucking Associations Chief Economist Bob Costello, who said in an interview on Transport Topics Radio he is stunned by the first-quarter GDP decline of 4.8%.
“This was really only about half of March’s impact. And so if things started to shut down halfway through March, and we fell 4.8%, I’m getting more concerned about the second-quarter reading,” Costello said. “Originally, I was thinking a 25% GDP decline, I think 30% is absolutely in the cards, and some of my fellow economists are forecasting a 40% reduction.”
One of those forecasting a more substantial drop in GDP is Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University.
“Going forward in the second quarter, expect numbers that are mind-blowingly negative in every direction,” Dhawan said. “In the second quarter, you might end up seeing numbers like minus 30%, minus 40%.”
Dhawan points out that would add up to about a 15% to 20% drop in annual GDP, or removing nearly $4 trillion in economic activity from the nation’s $21.5 trillion it generated in 2019.
After more than a month of rushing to restock grocery stores, hospitals and clinics, Costello said the trucking industry likely will experience a sharp slowdown soon.
“It’s bad, and it’s getting bad fast. The industry is not doing well right now in terms of volumes,” he said. “There are pockets of strength, online buying, grocery stores, but it’s not even coming close to making up for what was lost. I was talking to a flat-bedder, and they said they only have 10% of the freight they used to have. I was talking to a tank truck carrier, and they said they have no loads. Zero.”
The tanker truck industry in particular, Costello said, is in a deep slump as oil, gasoline and diesel deliveries have dropped, as has milk. Hundreds of thousands of students are home, and schools and universities are not buying milk. There is an excess of 2.7 million to 3.7 million gallons of milk a day that is being produced, according to trade group Dairy Farmers of America.
Statistics compiled by the U.S. Department of Energy and other data sources show that world oil consumption has fallen by at least 30%, from 100 million barrels of oil a day before the pandemic to less than 70 million now.
Deliveries to retail stores in March plunged as consumers stayed home. The National Retail Federation said in March revenue at retail stores dropped by 71%, to $8.8 billion compared with $30.3 billion in the same month a year ago.
“Even for those that are in lanes, or supply chains where freight is decent, it has gotten a lot more competitive,” Costello said. “You add it all up, it’s a tough environment out there right now.”
Before the pandemic, he said the trucking industry was facing a driver shortage of at least 61,000 drivers.
That shortage is probably over.
“Overnight, we went from a driver shortage to a driver surplus. If GDP falls 30% or more, I would fully expect to see volumes to fall that much,” he said. “If your volumes fall by almost a third in a short period of time, immediately the driver shortage is wiped out, and we probably have a driver surplus.
“It will take a while to get all the data to do that, but it stands to reason ... because demand has fallen so much.”
Meanwhile, Beaverton, Ore.-based DAT Solutions, which operates a network of loads boards and analytics services, said for the week of April 29, its load-to-truck ratio was below 1.0, coming in at 0.9. This marks the third week in a row the board has been below 1.0, and it means there are more trucks posting availability than there are loads to go around.
DAT iQ COVID-19 Market Updates - April 30:— DAT Freight & Analytics (@LoadBoards) April 30, 2020
- Dry van load-to-truck ratios remain at the lowest levels since we began reporting on COVID-19.
- Produce season signals possible relief
- Updated forecasting models
FULL REPORT: https://t.co/rx9wPkmDXf pic.twitter.com/fZ2LbHtZjm
The report said, “Load volumes have seemingly bottomed out at their current levels for the past three weeks. Some exiting of capacity from the spot market has nudged the load-to-truck ratio up, but still not enough to elevate above 1.0 for the third straight week. Rates continue to fall for both [refrigerated] and flatbed, hitting five-year lows for both equipment categories.”
Linehaul rates have fallen by nearly 25% since the start of the year, to $1.34 per mile April 27 from $1.78. But, DAT said, there is reason for optimism.
“It’s important to stress that these rates are not sustainable long-term, but we believe that the main driver of the low rates is the demand drop-off driven by social distancing. Once that roadblock is removed, even if it’s done slowly, the demand should return.”
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