Enter the Coronavirus

The coronavirus represents a threat to the integrity of the supply chain. As the Chinese government moves to quarantine and prevent the spread of the virus, it continues to cause problems. The virus now exists in the U.S. after travelers returned or were evacuated from Wuhan. Now, here’s the irony. The biggest threat to the supply chain is the risk of its transmission via ocean freight moves, as workers who are on board or work in the process of ocean shipping, may be on board at the origin, and without showing systems, may have the virus, travel to another country, and transmit the virus to others. However, the real problem lies in a loss of imports to the U.S., including raw materials, needed to continue strong manufacturing domestically. According to Greg Miller via American Shipper, the measures taken to contain the virus have virtually stopped freight movements in China. So, carriers are trying to make up for that lost revenue. 

The drive to continue profitability and recover from an epidemic is nothing new. 

“If we look at other terrible viruses that have spread in the past, what we know for sure is that once they are contained and things go back to normal, they don’t go back to normal. There’s huge stimulus, usually by China but also by other economies, to try to get back a bit of what has been lost during the [epidemic] period.”

Since carriers stand to increase profitability by keeping relationships with shippers alive and well, regardless of the challenges of navigating coronavirus, the spot market rates must decline. Shippers have grown accustomed to lower spot rates over the last two years, and with this new threat on the horizon, the same trend must continue for carriers to remain open for business.

Where Does the Carrier Market Stand Now

At the close of January, the carrier market was strongly favoring shippers. The load-to-truck ratio declined by 0.4 on neutral van volumes, and the average van rate was later than all DAT’s top 100 van lanes. Reefer freight fell to 3.8 from 4.9. Meanwhile, flatbed rates have ticked down to $2.14 per mile, down from $2.18 in January. The evidence points toward a bottoming out of spot rates and a continuation of a strong shipper’s trucking 2020 market, says Overdrive Online. 

Other problems also exist. 

The total number of truck orders for 2020 will decline, notes Transport Topics. As capacity declines, spot rates will increase, but for now, carriers cannot afford to take that risk. It’s that easy. Moreover, spikes in diesel could push the market up slightly, especially as OPEC gears up to increase rates in response to the coronavirus. With that in mind, spot rates will still likely fall well below the predictions from the industry in Q4 2019.