ILMA Compoundings - May 2020 - 19

"We understand supply and
demand, so prices start dropping,
but all of a sudden, you wonder
where you're going to make it up."
Sean Hillard, business development manager, BRT

"Those declines will continue and we could see a drop of
about 20% in second quarter GDP, which if that happens,
truck freight will fall by a similar amount."
Meil said he expects to see an overall drop of 8% in the
GDP in 2020. "The worst previous drop was the peak-totrough drop of 2008 to 2009 which was 4%," he said.
Usually, transition points are subtle, but COVID-19 has
created a landmark event that has thrown everything for a
loop, Meil said. "Everything has changed since February.
The world has been turned upside down," he said.
In mid-March there was a signal that shutdowns were
moving from the services and entertainment sector to the
manufacturing and goods-producing sector, which are tied
to transportation. "It is now pretty clear that this will be the
biggest post-war business cycle turn since 1945," Meil said.

TRUCKING FREIGHT LEVELS
All of that affects the movement of goods, and a market
forecast from FTR estimates that truck loadings will be
down 4% in 2020, which is lower than its previous forecast
prior to COVID-19 of a 1.3% increase.

"The hardest areas it is going to hit are the industrial
sector," said Avery Vise, vice president of trucking for FTR.
"Flatbed is going to feel a whiplash, because it was strengthening earlier due to housing starts, and it is now going to be
hit, at least in the near term, by a drop in housing starts, as
well as what is going on with oil and a potential collapse in
demand in the Permian Basin."
There have been some bright spots for trucking. Carriers
hauling products to grocery stores and medical facilities have
been extremely busy. Meil said that for the first few weeks of
March, pricing power for the trucking industry was strong as
consumers staples, medical supplies and even work-at-home
tech supplies were being shipped. "That caused a spike of
transportation needs that helped sustain rates," he explained.
"On the flip side, starting in mid-March, your auto industry
shuts down, off-highway starts to shut down, construction
sites and non-residential construction start to shut down."
Hillard said local gas and diesel hauling business is down
50%. "Most of the rates we run are contracted rates, so
those aren't changing. We're just doing less," he said, adding
that the fleet's over-the-road volumes have been relatively
stable, but that could change. "We're expecting to see some
drop off, but for the moment it seems consistent."
Pricing power that the fleets had in 2017 and 2018
had already vanished, Meil said. "The net of it is that we
experienced a transition in 2019 from a strong pricing environment in the prior year to one where, in essence, available
capacity, the available supply of trucks, exceeded the freight
trend and reversed the strong environment and turned it
into a neutral or even a weak environment in 2019."
Eileen Hart, a spokeswoman for DAT Solutions, said that
in a lot of ways, the declining rates in 2019 were a correction for the sky-high prices shippers experienced in 2018.
Meil said it could be early 2021 before supply and
demand come back into balance in the trucking industry.
BRT's Hillard said that even as freight prices dip, carriers'
costs don't decrease. "Truck costs go up, wages have gone
up 13% over the past two years, truck costs are up 15% and
tire costs up 10%," he said. "We understand supply and
demand, so prices start dropping, but all of a sudden, you
wonder where you're going to make it up."

19



ILMA Compoundings - May 2020

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