December 9, 2020 PAP-Q4-20-CL-006
The pandemic continues to have a direct impact on the demand for trucking services. Factory shutdowns in the spring led to reduced inventories. Retail sales have rebounded, resulting in the lowest inventory-to-sales ratio since 2014. Manufacturers and retailers are thus relying heavily on just-in-time transportation.
In September, the supply/demand imbalance was stark — some indices showed one hundred truckload shipments per available truck. With travel and entertainment curtailed, people can’t spend on services, so they are buying things to enhance their lives as they stay at home. Unlike services, things must be shipped. People have also been cooking much more at home, and the demand for fresh food, which requires shipment at controlled temperatures, has risen. Shipments of medicines that require cold conditions have also increased due to the demand for COVID-19 treatments. Because of these trends, the demand for cold-chain storage and shipping has increased significantly.
The supply side is short, leading to very tight capacity. After the pandemic hit, many motor carriers (but not Boyle) parked their trucks and didn’t replenish their recruiting pipeline because business was down. Now that business has picked up again, they are short-staffed.
COVID-19 has also impacted professional truck drivers directly. Some have missed work because they contracted the virus. Others have voluntarily come off the road due to school closings or the need to care for family members. Indeed, we have hired more people to do even the same amount of work.
The driver shortage has been exacerbated by federally mandated use of the Drug & Alcohol Clearinghouse beginning in January 2020. While there is a formal return-to-work process drivers can follow after failing a drug or alcohol test, 78% have not elected to begin that process. Around 27,000 truck drivers have vanished from the pool since January, according to Freightwaves.
Insurance rates have also been rising drastically. According to the American Transportation Research Institute, the average jury verdict for a truck claim rose from $2.6 million in 2012 to $17.5 million in 2019. The financial strain on motor carriers, combined with the financial difficulties created by the pandemic, has caused a number of fleets to exit the market. Some of the fleets that remain are staying afloat by purchasing less insurance coverage, shifting more risk to the shipper.
The result of the increasing demand and limited supply has led to severe capacity tightness. The Logistics Managers’ Index, a survey of leading logistics executives, indicated that transportation capacity in September fell to new lows. These low levels have occurred before the holiday season when peak demand typically occurs. Respondents to the survey expect capacity to continue to contract over the next year, but at a slower rate.
COVID-19 vaccine distribution is the most complicated logistical challenge since World War II. Many of the vaccines will require low or very low temperature shipment, and thus likely a combination of state-of-the-art active containers and temperature-controlled vehicles. It is essential that carriers be engaged months in advance.
While the vaccine makers are understandably inward facing right now due to the complexities associated with developing safe and effective products, they have engaged with global integrators, freight forwarders, and carriers like Boyle to help us determine how we can best serve them. We have been doing test runs with them to prove logistical concepts in anticipation of vaccine approval. We all share the same concerns and want to plan as much as possible during a very fluid situation and a time of limited transportation capacity.
We need a solution approach that accounts for the transportation vessels (aircraft and trucks) and the combination of active and passive shipping containers that will be required. The speed of the network must also be emphasized, because most containers will need to be replenished with dry ice or recharged in some way to maintain temperature control.
For the last 30 years, the supply chain has been moving to a global and “Lean” approach. The pandemic has exposed risks associated with that strategy. Whether driven by a government edict or corporate strategy, there will likely be more emphasis on supply chain resilience. We anticipate more “near-shoring” or “reshoring,” whether to North America or specifically to the United States. That shift, combined with the trend of more products requiring temperature control, will drive healthcare transportation demand. So we’ll continue to build out capabilities to meet that demand. We are also seeing a shift to the use of more software tools and mobile devices within the truck transportation sector. We expect to see more attention paid to the health and wellness and financial stability of professional truck drivers now that the general public realizes how important they are.
Boyle responded immediately following the emergence of the pandemic, implementing several measures to protect both our workers and our customers. We adopted physical distancing and engineering and administrative controls, increased cleaning protocols, required the use of PPE, and implemented contactless delivery per OSHA guidance. Rather than letting drivers go, we hired more people to ensure that all shifts were covered.
We already provide secure, validated cold-chain transportation for many vaccines. For COVID-19 vaccine manufacturers, Boyle Transportation offers a strategic approach to logistics and transportation that includes highly trained and experienced employees, advanced technologies to ensure validated temperature control and digital chain of custody from pickup to delivery, and extensive risk-management systems.
Our nearly 50 years of experience providing logistical support to government agencies and transporting defense materials led us to establish enhanced security protocols beyond what is typically needed to transport drugs, but which may be key if vaccine supply cannot keep up with demand. We are familiar with the many nuances associated with accessing facilities, security clearances for personnel, and transportation security standards, including or exceeding those established by BARDA.
We ensure uniformity, reliability, and high-quality delivery of crucial pharmaceutical products and provide our customers access to markets and people all across the United States. We have been making investments and our proud logistics professionals are prepared to support the distribution of COVID-19 vaccines when they are available.
Andrew is vice chairman of the American Trucking Associations and a director of the American Transportation Research Institute (ATRI). He is a member of the Business Advisory Committee of the Northwestern University Transportation Center, a director of the House of Hope, and a trustee of Eastern Bank. He earned an MBA from Northwestern University’s Kellogg School of Management and an AB from Bowdoin College.