Freight-payment levels provide a good snapshot of current economic activity, and judging by the trend detected by U.S. Bank for the first quarter of this year, the news isn’t good. And payments are likely to keep falling throughout the first half of 2020, as the impact of the coronavirus and economic downturn persists. In this conversation with SupplyChainBrain Editor-in-Chief Bob Bowman, Bobby Holland, vice president and director of freight solutions with U.S. Bank, parses the results of the bank’s latest Freight Payment Index.
SCB: What has been the impact of the coronavirus pandemic on freight shipments and spending?
Holland: In general, we've seen that shipments and spend are down slightly. Parts of the market have surged, such as household goods and medical supplies. On the other hand, idling and closures have affected multiple segments of the marketplace, such as manufacturing and the hospitality industry. So the balance is a net negative.
SCB: Do you see differences by region in the patterns you're detecting?
Holland: Yes, definitely. The Southeast was the only region in our index that had positive movement. Most of the others were down on a quarter-over-quarter basis.
SCB: Why was that?
Holland: The Southeast appears to be better equipped because of hurricane seasons, and the repeated things they’ve had to deal with weather-wise. That seems to make for a more resilient supply chain. In addition, the Southeast has a high volume of inbound and outbound freight, with a lot of backhauls. So goods are constantly moving. The West was the first and potentially hardest-hit region. China shut down, and there were still tariff wars, which affects West Coast ports volume-wise. The Midwest does a lot of business with the West, so both regions are impacted in some ways. Also, a lot of energy and oil suppliers were down.
SCB: Can you break it down by mode or industry?
Holland: Eighty percent of the shipments we measure are truckload and less-than-truckload. Right now, barge freight is up, LTL is holding neutral, and household goods are down. We see a slowing of spend there, if you look at it on a weekly basis. At the beginning of the pandemic, supply chains were working overtime to catch up, so we're now seeing that movement moderate quite a bit.
SCB: What are your expectations for the near future?
Holland: We're expecting that Q2 is going to continue to fall in terms of shipment and spend, perhaps possibly flattening out in Q3, and ideally seeing some horizon in Q4. As sectors open up, that will take effect.
SCB: Q1 shipments were down 1.8% versus the fourth quarter, and spending was down 3.7%. Would you expect the numbers to be significantly worse in the second quarter, as the impact of this crisis takes a greater hold on the economy?
Holland: That's correct. What we saw in the first quarter was again a huge uptick in essential goods. Things would have been worse if not for that. There was a lot of stockpiling, and essential-goods and medical-equipment providers were bending supply chains to make up for shortfalls ahead of the closings. Going into the second quarter, there’s still going to be high usage of such goods, but there won’t be the panic-type buying we saw in Q1.
The other part of it is that we don't know the full effects as different parts of the country adopt different standards for reopening. Will there be a full-on return to business? Will things be revving into overtime and back into high gear? Not likely. That's why we probably won’t see any real increases until Q3.
SCB: One wonders whether the capacity will even be there, given the failure of many carriers due to the economic downturn.
Holland: Our economist has stated that there’s a chance of that. It's one of the unknowns. But if manufacturing ramps up, then those same carriers that scrambled to find freight are going to need to come back. It just depends on how long things take to improve, and where. Certainly demand and supply are going to be in tight contention, before it sorts itself out.
SCB: Have you have detected any changes in payment terms as a result of the economic crisis? Are payments being stretched out?
Holland: We see a lot of customers looking at extending payment terms. Shippers are trying to move their goods as quickly as possible, and they need to be nimble to do it, so having better cash flow is a plus for them. But by the same token, carriers are trying to adapt to what they need to do. Solutions where they get paid faster, based on agreed-upon processing rules, are becoming top of mind. So on both sides, cash flow is king.
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