The transportation industry has been hard hit by the intensifying Covid-19 crisis, with demand from key markets - including steel, automotive and energy - deteriorating, which in turn has brought changes that could alter how the steel industry ships its product, industry sources said.
The pain experienced by the steel industry due to a dramatic decline in demand from major steel-consuming markets has been felt by the freight industry, an essential part of the steel supply chain.
“Motor vehicle activities have dropped to close to zero, certainly the lowest levels that we’ve seen in the post-World War II period,” Jim Meil, principal and industry analyst at Americas Commercial Transportation (ACT) Research Co LLC, said in an interview with Fastmarkets. “Construction activity is now very very low [and] the energy activity, that is to say, oilfields and natural gas activity, [has also declined.]”
Indeed, for the week ended Saturday April 11, weekly rail traffic in the United States totaled 412,503 carloads and intermodal units, down by 21.9% from the same week last year, according to Association of American Railroads (AAR) data.
Similar to the railroads, despite a spike in demand in March due to increased orders for essential goods, such as grocery restocking, due to the Covid-19 pandemic - the trucking market has also been hit by falling demand and has been forced to significantly lower rates, industry analysts told Fastmarkets.
“The trucking freight rates and spot rates were high into the middle of March,” Meil said. "Over the last three weeks, trucking freight rates have weakened notably.”
But compared with trucking, rail costs seem to be more resilient to the downturn in demand.
Rail pricing typically increases annually due to an inflation adjustment, Todd Tranausky, vice president of rail and intermodal at transportation intelligence service provider FTR, told Fastmarkets.
“We expect to see a 1-2% increase [in rail costs] this year, down from our previous expectation of around 3%,” Tranausky said. “So rail shippers will get some relief, but it’s not going to be the sort of dramatic price drop that you’ve seen on the truck side.”
Part of the reason trucking is more vulnerable to the impact of the pandemic could be an existing overcapacity problem.
“Now it is a situation where excess capacity is chasing available motor freight, so there is the rate weakness,” Meil said, noting that the shipper, in essence, has the advantage right now.
Therefore, for a steel shipper, it might be time to change how they choose the method of transportation for shipping their products.
“I think folks – if they are a rail shipper – have to ask themselves do they still want to be a rail shipper coming out of this or do they want to take advantage of a looser flatbed market and move their goods that way,” Tranausky said.
This cost advantage to ship via truck versus rail will likely continue until the middle of 2021, he added.
Sources also raised the issue of the potential risk for truck drivers to be exposed to the coronavirus.
“[Truck drivers] are being exposed with every pickup and delivery they make... And then what about stops? I mean, obviously these guys have to use a restroom on a 1,000-mile run, where do they go?” one West Coast service center source asked, adding that such stops can be hotbeds for virus transmission.
Meil noted that the transportation industry has responded to such concerns with “best practices” that include wearing gloves at truck or refueling stops, but the risks will remain as long as the pandemic continues in the US.
“It’s hard to make generalizations because there are always millions of deliveries every day with millions of trucks on the road,” he said. “There are always going to be exceptions.”