Freight and logistics companies quite managed to deal with the pandemic's effects in the short term. Their worry is now how to adapt and recover fully for the future. Research indicated that the trend in the Freight intensity is on the decline. There has been a shift away from bulky goods to light manufacturing and services. The research tries to map the Freight intensity to its recovery effects for the Freight and Logistics industry.
adapting to new normal
Fully recovery is expected to take about three to five years; this period will put the industry at large to quite some test. The modes of transportation and the commodities offered will also see different rates of recovery. Some products will return to favor quicker than others. So, the faster the companies adapt to the new normal, the quicker they will recover. The ''muted world recovery'' scenario indicates that full recovery would be attained by the first quarter of 2023. There are other different scenarios with different views on how recovery would take place. Services are expected to recover the fastest by quarter $ of 2022. Wood, paper, and textile are to take longer by 2024.
Who will recover faster?
As per the ''muted world recovery '' , recovery for essential commodities is expected to grow significantly by 2024. Other goods like coal and appliances are expected to drop even further. GDP recovery and Freight intensity changes will help see recovery in sales of Electronics, services, and agriculture, and food. The modes of transport and individual carriers to recover will be down to how well their commodities go. Less-than-truckload (LTL) shipping and full-truckload (FTL) shipping are expected to recover faster than other modes since they deal with agriculture products, food, and services that are expected to recover more quickly. Transporters of cargo will take longer to recover.
The US freight and logistics companies are expected to have a challenge relating to their customers. Companies that will be able to outsmart their peers will be able to recover better than others. Companies will have to shift their finances towards activities that guarantee better pricing and demand. They also are quickly moving towards commodities that will help them realize returns quite quicker compared to competitors. Finally, most companies are shifting towards digital capabilities to interact better with the customers. Though startups may have challenges in the market, those innovative in the technological realm have had a better shot at survival.
Covid-19 a Profit in Disguise for Carriers
Dryvan carriers’ Operating Ratio (OR) for Truckload Carriers Association went thelowest, hitting below 94% ever since 2015, where the operating ratio is operatingexpense to operating revenue. The lower figures indicate profitability. Tenderrejection rates also hit close to a record high during the same period.Trucking heavily relies on efficiency in the operation operations andconsistency I volumes to maintain a profit margin. With competition levels,carriers have no way of increasing prices to make more interest even whendemand is low.
The coronavirus pandemic hit when the freight market was stable with lots of supplies, evident from the low tender rejection rates. In early March, when the pandemic struck, volumes went up suddenly due to lots of panic buying, especially for household items. The pandemic was a blessing in disguise for carriers as they realized profits and a drop in the OR as most people neglected services and went to purchase goods. Moreover, the primary worry for carriers is if they will have the capacity to handle the volumes if the upward trend prevails.
How Freight and logistics companies to adapt and recover fully
There are a few issues that might help the truckers maintain the current profit margins realized currently. One of the things is driver recruitment; since driving schools have had problems with training, fewer recruitments will help carriers reduce capacity growth. The only challenge is that the drivers would be more costly to recruit and retain in the future.
Another positive factor is the volatility of the freight market. In addition, the freight and logistics companies have experienced growth in the recent past, and the same will provide some hope heading into the future. To sum up, truckers will be expected to remain so competitive to retain profitability in an environment that nothing is easily given.
