Tough road ahead for transportation markets

Transportation and freight markets are hurting and the outlook calls for a bumpy ride ahead, according to industry researchers investigating the economic effects of the coronavirus pandemic on U.S. freight carriers. Declining profits and a delayed recovery in many markets top the list of problems, but researchers in separate studies also point to areas that may spell opportunity for many carriers—especially when it comes to “digital transformation.”

“It is clear that transportation companies must navigate the Covid-19–related downturn,” according to a recent study from New York-based management consulting firm Deloitte titled Finding Opportunities in Today’s Transportation Sector. “But the current crisis presents a dramatic opportunity—one that may allow companies to remake themselves and perhaps the sector as a whole by addressing the long-standing challenges of meeting ever-increasing customer expectations (such as faster and free delivery), inefficient networks and congestion, excess capacity, changes in workforce, shifts to trade patterns, and an underinvestment in technology.”

The stakes are high. According to Deloitte’s research, by the end of 2020 up to 45% of the transportation sectors’s operating profits could erode. A second study released this week by New York-based McKinsey & Company estimates the recovery time from the Covid-19 pandemic for freight and logistics companies at three to five years, although that will vary by transportation mode and commodity, the researchers said.

“Some products, such as nonmetallic minerals, ceramic, clay, cement, agriculture and food products, and pharmaceuticals, will likely return to growth faster and more firmly than other products,” the researchers wrote in U.S. Freight After Covid-19: A bumpy road ahead to the next normal. “Companies that can adapt their portfolios to shippers in these sectors can accelerate their own reversal of fortune, shaving as much as two years off the time needed to return to 2019 volumes.”

Addressing these challenges calls for companies to take action in three main areas, according to McKinsey: rebase spending and assess supply risks; reorient their business model toward the pockets of growth that will be stronger over the next few years; and invest in new digital capabilities. The Deloitte study offers insights that echo those goals: 

• Covid’s impact could actually accelerate long-needed transformation in the sector and facilitate stronger long-term stability, the researchers said. “While a quarter of transportation companies are in dire straits due to the current environment, most transportation companies have greater degrees of freedom to survive this crisis and invest in a stronger future,” they wrote.

• Regardless of the pandemic’s impact on a company, there are certainties to address, including: the need for new tech and data for holistic decision making and meeting customer expectations for the connected community.

• Overall, the pandemic has added new pressure to existing opportunities with a renewed focus on meeting customer expectations, especially around fast and free delivery; managing inefficiencies, congestion and fragmented supply chains; integrating new technologies; adjusting to shifting talent models; and tackling disruptive entrants, they also said.

A third study, by Boston-based Lux Research, concludes that the transportation and logistics sector is still in its infancy when it comes to digital transformation and that increased use of digital tools can help companies address problems in three areas: 

• Visibility: The ability to track/monitor goods in real time.

• Agility: Expedited delivery demands from digital consumers.

• Sustainability: Reduction of emissions while leveraging fast modes of freight, such as aviation.

“Across industries, digital transformation chiefly serves as a transformation tool that plays into the fundamental challenges affecting that industry,” the researchers explain. “For logistics, [digital transformation] will act as a resolution for tackling its three pain points around visibility, agility, and sustainability.”