COVID-19 Impact on Energy and Freight Markets

Posted by PS Energy Group on Apr 14, 2020 10:00:00 AM

The global economic fallout from COVID-19 is a rapidly evolving situation with ramifications across a wide range of markets, including energy and freight. Actions to combat the impact of the pandemic have intensified, resulting in supply chain disruptions, travel bans, and widespread lockdowns nationwide and around the world.

For perspective, let’s take a brief look at how COVID-19 has impacted these markets.

Energy Market Impacts

Urgent and aggressive measures to slow the growth of COVID-19 have decreased the demand for crude oil and refined fuels. In fact, the International Energy Agency recently reduced its 2020 oil demand forecast by 1.1 million barrels per day.

Likewise, the U.S. Energy Information Administration recently shared a forecast for international crude oil supply and demand, showing that the market imbalance is likely to continue through the upcoming quarters.

With gasoline consumption drastically reduced, the demand for gasoline has gone down while supply has gone up. And, this trend will continue pushing pump prices lower for the foreseeable future. Diesel demand, on the contrary, has shown resilience, due to the robust freight volumes related to trucks hitting the road in response to consumers emptying shelves and “stocking up.”

Regarding prices, crude dropped to $20/barrel — a low not seen since 2002, according to AAA. The national average of regular unleaded gasoline recently landed at $1.99, accounting for the cheapest averages in four years. AAA speculates that, because of COVID-19 and the ongoing crude oil price war between Saudi Arabia and Russia, prices could go as low as $1.75 per gallon in April.

Freight Market Impacts

Transportation supply chains continue to be disrupted by the pandemic. Consumer spending on durable and non-durable goods has a direct effect on freight demand for those goods, but with key differences during an economic slowdown.

Non-durable goods have seen a significant increase in freight demand as consumers stockpile household essentials. Freight demand in non-durable goods industries rose close to 18 percentage points since COVID-19 first struck, marking an approximate 15 percentage point increase Year-Over-Year (YoY).

Durable goods, however, are a different story. As consumer demands force shippers of non-durable goods to rush products to stores, the need for durable goods’ freight demand has dropped significantly.

In periods of uncertainly and economic slowdown, consumers are typically more hesitant to spend more than necessary. If mass layoffs and consumer sentiment continue on a downward trajectory, look for the demand for durable goods to follow suit.

Recent dips in consumer sentiment related to COVID-19 represent the fourth largest drop in nearly 50 years. Since the outbreak, freight demand for durable goods has declined by 5% and approximately 15% YoY. 

With the nation dependent on truckers to keep supply chains rolling, data from DAT Solutions (a US-based freight exchange service and provider of transportation information) shows that “spot rates” (the cost to hire a last-minute truck on the open market) have jumped 6.1% since late February.

Data additionally shows that rates for 63 of the country’s 100 most- high-volume truck routes have risen. Load-to-truck ratios, which is the demand for trucks on the road, sharply rose above 2019 levels in mid-February.

With all the uncertainty and few answers surrounding COVID-19, trucking companies are finding it harder to recruit long-haul drivers who can be away for days or possibly weeks. As the pandemic persists, labor shortages on transportation can soon become a problem fleets will have to address.

Stay safe. And, stay tuned.

Tags: Fleet Management, Industry News & Reports

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