Despite the challenges posed by COVID-19 on the commercial trucking industry, freight levels have continued to outpace expectations. There are many factors that have reversed low consumer demands in the early part of 2020, and by the end of the year, the commercial transportation industry was nearly back to pre-pandemic levels. Still, challenges remain, and industry analysts have voiced concerns. As a risk management strategy, trucking operations firms must understand the volatile nature of freight demand. This knowledge helps to supplement the protections of trucking insurance, helping freight haulers prepare for an uncertain future.
A Year of Fluctuations
In the first few months of 2020, COVID-related quarantine and stay-at-home orders effectively shut down the economy, save a few small glimmers of activity in consumer goods. Freight demand plummeted quickly, then regained momentum as consumers shifted towards essential and online purchasing. In fact, it is retail goods shipments that have represented the bulk of demand, while manufactured goods remain behind in terms of shipping percentages. Just like trucking insurance protects freight haulers from risk exposures, gauging the momentum of freight demand can help shipping companies allocate available resources to take advantage of increasing demands.
Overall, demand lags behind 2019 levels, but hope is on the horizon for truckers. According to the American Trucking Associations (ATA), the For-Hire Trucking Index increased by nearly 4% in November, erasing much of the losses in demand experienced the previous month of 2020. Another transportation index called the Cass Freight Index, reported a slight decline in November 2020 but still almost 3% higher than a year previous. It is important to note that the Cass Index includes multimodal freight shipments, not only the freight being hauled by truck. Industry analysts expect that freight demand will continue to grow throughout 2021, especially as COVID-19 vaccines begin their distribution rollout.
Spot and contract freight rates fluctuated wildly throughout 2020 and into 2021. By the end of the year, spot rates in both van and flatbed categories set records, averaging around $2.47 per mile. Refrigerated goods’ spot rate declined slightly, but analysts suggest that was typical of holiday seasons and was not related to the pandemic.
Concerns in in the Commercial Trucking Sector
COVID-19 continues to loom large over the U.S. economy. The virus represents the largest variable affecting freight demand, with fluctuations in infections influencing consumer spending. Declines in infection rates reversed in the holiday season, and by the end of the year, hospitals were full once more. While trucking insurance serves as a hedge against certain risks in the commercial transportation business, truckers remain at the mercy of the virus.
Beginning in December 2020, the first COVID vaccines became available and truckers were pressed into service to distribute them. Truckers were included among the first groups of people to receive vaccines, thanks to pressure from the ATA and other trucking associations, who argued that truckers were needed to facilitate distribution. This push helped to drive up freight demands as vaccines roll out across the U.S. and Canada.
Two issues plague the trucking sector: inventory and capacity. A strengthening economy and increased consumer demands have reduced retail inventories, but manufacturers crippled by the coronavirus have not been able to meet production demands. Infections across the trucking sector have contributed to a driver shortage, and the result is more freight than trucks available to transport it. This factor alone has been a significant contributor to rising freight rates. Shippers are evaluating their trucking insurance coverages as one strategy in preparation for shifts in both inventory and capacity levels.
Finally, mixed signals on the part of the federal government have created issues that trucking companies are struggling against. Relaxed regulations have allowed more drivers to get behind the wheel, yet new rules on drug testing that went into effect in January 2020 have resulted in the loss of thousands of truck drivers. Transportation forecasters indicate that the trucking industry will experience improvements in 2021, there remains some skepticism that the industry itself will stabilize to pre-pandemic levels.
About Western Truck Insurance Services
Western Truck Insurance Services is a commercial truck insurance agency with roots dating back to 1954. We have evolved into a highly respected, professionally managed, truck and transportation insurance brokerage. The hallmark of our organization is our desire to provide unparalleled service. We go way beyond what you expect to receive from an insurance brokerage. Equipped with state of the art automation, Western Truck Insurance can provide you with lightning fast truck insurance quotes, customer service, Insurance certificates, and coverage changes. Contact us today at (800) 937-8785 to learn more!