COVID-19: How the Pandemic Is Changing Intermodal
Ever since the first quarter of the year, COVID-19 has significantly impacted just about everything we are accustomed to, which most certainly includes the freight landscape. Trucking, rail, sea shipping, warehousing and logistics across North America have all been affected by the global pandemic.
Which changes are temporary, or short-term, and can bounce back relatively quickly, and which ones could have longer-term ramifications for the intermodal industry? Intermodal Insights asked these questions and others to a group of industry experts and stakeholders to get their views.
Regarding what has been the one biggest effect that the pandemic has had on the intermodal industry thus far, most people interviewed agreed upon one answer.
"It’s taken a hammer to volumes," Larry Gross of Gross Transportation Consulting said of the pandemic.
"Volume declines and changes in domestic and international shipping patterns are the most quantifiable impacts to date," Association of American Railroads spokeswoman Jessica Kahanek said. "However, the increased short- and long-term uncertainty also will have an impact on the rail business going forward."
RoadOne Vice President Ken Kellaway shared that in addition to major decreases in nonessential retail volumes, inconsistent volumes for international freight across the board has been a big issue.
"This inconsistency results in challenges in managing capacity and our owner-operator and company assets," he said. Chris Connor, president and CEO, American Association of Port Authorities, noted that one the biggest effects to the ports thus far during the pandemic is the increased costs related to cleaning, sanitation, supplies, personal protective equipment and overtime, to keep port and supply chain workers safe and to help stop the potential spread of COVID-19 in port communities.
"Ports have set aside market share aims in favor of keeping port workers safe and healthy, and getting goods to the frontline of the COVID-19 battlegrounds, as well as to consumers," Connor said. "Each of our members has been impacted in myriad different ways by COVID-19. But one thing is clear—all have been affected by this crisis."
Regarding which effects of the pandemic are short-term that the intermodal industry might be able to bounce back from relatively quickly, transportation economist Noel Perry of Transport Futures said that since the factors that shut the economy down are all artificial, then as they are reversed, people will again begin buying products and services, thereby giving a boost to the goods transport industry.
"The other half of the story is how long will it take for people to go back to their conventional behavior," he remarked. "There’s great doubt as to how complete the recovery is [going to be]. My guess is that it’ll be about three quarters complete by the end of the third quarter. Other people are more pessimistic, thinking that there will be a prolonged slow recovery that will last into 2021. I don’t think we’re going to get back to 2019 levels until 2022 or 2023. That’s because I think the economy’s going to stall after this short-term stuff is over."
Kellaway said he believes that international volumes will begin to stabilize starting this summer, thus easing capacity concerns on the import side.
At Virginia International Terminals, Operations Vice President Robert Cannizzaro said another short-term effect that won’t gain permanency is people with certain jobs working from home rather than from a central location.
"There are people that are able to work remotely and there are people that aren’t. Dispatchers and office workers, they might be able to work outside the facility that they may be responsible for, or outside of their office. Once the pandemic is averted, things will go back to normal relatively soon—we’ll stop the temperature screening, we’ll move people back to their desks, we’ll stop the enhanced cleaning and go back to the normal office cleaning."
At the Port of Long Beach, North America’s second-busiest port by volume after the adjoining Port of Los Angeles, Executive Director Mario Cordero said that there are signs that the declining volumes the port experienced in the early months of the pandemic are starting to give way to growth.
He cited as an example a June vessel call in which dockworkers transferred 17,080 containers—a total of 30,744 TEU and a Port of Long Beach record—from the MSC Sveva at the port’s TTI terminal.
"It’s the highest volume container movement ever achieved in North America," Cordero said. "Perhaps this is some light at the end of the tunnel with regard to a recovery stage. Hopefully we’re at a point where at least there’s some form of positive movement of cargo."
Possible Permanent Effects
What changes has COVID-19 inflicted upon the intermodal industry that could become permanent? Cannizzaro said he thinks they’re probably related to those people who have gained the flexibility to telecommute during the pandemic.
"There’s probably going to be a fundamental shift in remote working," he explained. "Now that we were forced into it as an industry, we probably saw that people can be trusted and can be productive working remotely as long as they are given the tools to do that. I think that our ability to meet with people and interact with people via technology as opposed to [doing so] via travel will probably fundamentally change our appetite to get on a plane. Because we’ve seen that we can do those sorts of things without the expense and the burdens that are associated with those opportunities to travel."
Regarding rail, Kahanek said it’s too soon to tell about how rail customers could potentially change sourcing, etc.
"The impact of the ongoing trade with China is also another unknown—but important—factor in both the short and long term," she remarked. "Challenges often create opportunities and allow businesses to reexamine operations from a different lens. To the extent the pandemic has led to ways to improve operational efficiencies, it would not be surprising to see those become permanent."
One effect that may become a mainstay in the intermodal and logistics industry is the increased instances of near-shoring by manufacturers, Connor said.
"This means they’re working to shorten their supply lines by producing and sourcing goods either domestically or closer to home," he explained. "This is particularly true with goods such as pharmaceutical drugs and personal protection equipment, which must be immediately available in a contagion crisis like COVID-19. This trend was already underway before the pandemic, and the coronavirus outbreak just accelerated it. Much like banks were made to endure stress tests after the 2008 financial crisis, supply chain operations are undergoing similar kinds of stress tests right now."
"The pandemic has heightened shippers’ awareness of the need to have ready access to essential products and materials without the worries of international trade tensions, long shipping delays, environmental concerns related to shipping and other issues hampering access to goods and affecting their costs," he said. "The key thing for ports right now is to be able to maintain a ‘state of readiness’ for whatever the future may bring. That will likely require some modest federal assistance, such as the $1.5 billion relief package that AAPA is advocating to help U.S. ports cover operations, equipment, infrastructure costs and debt service expenses resulting from the pandemic’s impacts."
Kellaway said that the "in-store" retail shopping experience will continue to decline, with a move to e-commerce furthering the trend of more localized distribution centers.
"Retail will not rebound until people feel safe, and with states closing again, it could be some time until we see that," he explained. "We are also seeing a shift in countries of origin on the international side, with importers changing their sailings and at times ports themselves, forcing a shift of capacity."
Recovery Tied to Vaccine?
A big question is whether a complete recovery for the industry is tied to if and when a vaccine for the novel coronavirus is available. Connor said he believes that until a proven vaccine is available, precautions to keep port employees, their customers and their communities "pandemic safe" will be ongoing.
"A coronavirus vaccine that is universally available will be a necessary step for the intermodal industry to reduce the amount of time and expense spent on protecting workers, communities and cargo from spreading the virus," he said.
"Even after a vaccine is widely available, I still predict the experience we are all going through now will portend a long-term and possibly permanent focus on enhanced cleanliness, [increased] worker protections and greater cargo security so we aren’t lulled into a false sense of pandemic safety."
"The intermodal industry in the Western Hemisphere will likely permanently adopt aspects of what they are doing now," he continued, "which will serve to guard against a deadly and costly future outbreak, along with the competitive ramifications such an event brings."
Kellaway said that both essential and non-essential retail will be directly impacted by the development of a vaccine.
"A feeling of safety is key to bringing back customer support and confidence," he explained. "Knowing that there won’t be another round of assembly plant closures and that warehouse and factory workers are protected via vaccine will certainly help me sleep better at night."
Cordero said that a vaccine is a "necessary element" for an overall rebound of the economy.
"Until that happens, the public will have a level of anxiety with regard to the precipitous movement of this virus," he said.
Gross remarked that a vaccine will be a "dramatic" help.
"But if a vaccine was available, how many people do you think are still not going to take it, just because they’re anti-vaccine? So even a vaccine, to my mind, is no guarantee of normalcy, and I’ll put that term in quotes, because there’s going to be a new normal at the end of all this, regardless of whether there’s a vaccine or not."