Consultant Insight: Global trade is a drag on US road demand

[caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] The road to and from the airport looks different these days. Instead of business people and vacationers departing and arriving, airports are welcoming trucks carrying cargo. However, airports and truck carriers continue to face obstacles as potential passengers remain on the ground, and the demand for cargo softens. U.S. passenger air travel is down 95% and airlines have canceled 80% or more of flights into June. As a result, airports are shutting down concourses, gates and runways to save costs. In late March and into early April, the overall trucking market noted a spike in volumes. “There was a huge divergence among freight types,” said the American Trucking Associations’ chief economist, Bob Costello, in the organization’s monthly report for March. “There was a huge divergence among freight types. While freight to grocery stores and big-box retailers was strong in March, especially late March, due to surge buying by households, freight was anemic in other supply chains, like that for gasoline, restaurants and auto factories.” Not only has the composition of domestic cargo shifted, but international cargo has also undergone a change. Despite reporting record revenue during the first quarter, Forward Air Chairman, President and CEO Tom Schmitt said, “COVID-19 has been a perfect storm — globalization at its darkest — that has impacted all of our modes, given our network’s exposure to nonessential freight with heavy ties to air and ocean freight from Asia and the retail mall business.” Indeed, the roads to and from airports and ocean ports are sparse ones for cargo these days. Forward Air’s earnings tell the story, at least for the first quarter. Within its Expedited Freight Division, network operating revenue — which includes linehaul, pickup/delivery and fuel surcharge revenue — declined 9.4%. Truckload increased 0.2% and final mile was the star, with operating revenue increasing 38.0%. The number of shipments slipped 4.8% and shipments per day fell 6.3% for the Expedited Freight Division. “Traditional airport-to-airport linehaul is seeing a dearth of volume from traditional forwarding customers,” Vice President and senior analyst J. Bruce Chan wrote in Stifel’s recent research report on Forward Air. “Door-to-door growth has been better off a smaller base.” Demand for international goods will remain muted until manufacturing reopens and consumer demand improves. According to the U.S. Census Bureau’s International Trade in Goods and Services report, March exports were $187.7 billion, $20.0 billion less than February exports. March imports were $232.2 billion, $15.4 billion less than February imports. In terms of exports: Industrial supplies and materials decreased $2.9 billion; Automotive vehicles, parts, and engines decreased $2.5 billion; and Capital goods decreased $2.0 billion. In terms of imports: Consumer goods decreased $4.0 billion; Automotive vehicles, parts and engines decreased $2.7 billion; and Capital goods increased $1.5 billion. Year-to-date through March, exports have decreased $21.7 billion, or 3.5%, while imports have decreased $49.7 billion, or 6.4%. Forward Air is responding to the slowdown in economic activity by “flexing” its asset-light model and “greatly enhancing” its cost-reduction programs. In addition, it is evaluating strategic options for its Pool Distribution group, which reported an almost 13% decline in operating revenue for the first quarter. Similar strategies are underway at other road transport providers as many scale down to match current demand. Growth in demand will depend on how quickly manufacturing can reopen as well as demand in goods. For example, the “Big Three” U.S. automotive manufacturers — Ford, General Motors and Fiat Chrysler — recently announced plans to slowly reopen facilities this month. However, the big question is, with U.S. unemployment rates in the double digits, what will demand for automobiles look like for the foreseeable future? Forward Air may want to continue its efforts to grow its Final Mile group as it undergoes cost-reduction programs.

Consultant Insight: Global trade is a drag on US road demand

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