The economic downturn for the past few months has a lot of people on the edge of their seats, especially in the fleet industry, but how is this economic decline from coronavirus effecting your fleet? The COVID-19 scare may create a snowball effect, leading to incoming shipment decline for ports, fuel price fluctuations, and an overall decrease in carrier jobs country wide.
Decline in Port Shipments
Currently, the ports feeling the most decline are mainly the west coast cities like Los Angeles, Long Beach and Seattle, who have seen a dip in containerized cargo by 9% in February when compared to the previous year. To give another example of how the coronavirus is affecting shipping, Seattle has seen a drop in over 50 sailings which is usually a decline over an entire year, not a few months. Ports on the east coast are seeing less of a decline, but they are still down by 1% overall.
Decline in Fuel Prices
Decline in fuel prices have fleet managers questioning their next move. With the largest one day drop in crude oil prices in almost 30 years, there may be an opportunity to save money. Depending on the negotiated fuel prices within each fleet contract, fleet managers won’t be able to capitalize on the lower prices unless this price point continues to decline. Fleet contracts usually include price fluctuations from previous years (when the terms are negotiated) so if your fleet is stuck in one of these agreements, then the only way to capitalize on the cost savings is in the hopes that this continues for 6 months. On the other hand, Fleet managers who are not stuck in a fuel contract agreement (usually independent owner operators) will be able to see an immediate cost savings. This will also make the decision for purchasing fuel efficient vehicles take a backseat until the price per barrel go back up. No point in spending the money for future cost savings when you can continue to use old vehicles for the same price point.
What is Causing Fuel Prices to Drop?
The reasoning behind this price drop is the overall trade war going on between OPEC and Russia, not just the coronavirus scare. Originally, Saudi Arabia cut their prices of crude oil by 10% to combat the negotiations from Russia in the hopes of forcing them to compromise with OPEC, this lower price point per barrel has sent shock waves through the oil production industry on a global scale. Venezuela and Iran are feeling the effects already due to sanctions from the U.S and this lower price point will continue to be a thorn in their side. From a local standpoint, States with high oil production like Texas are forced to laying off workers in the hopes of surviving these negotiations of global industry leaders. Saudi Arabia has increased their production by nearly 1 million barrels per day in the hopes of adding continued pressure on Russia to come to the table for compromise. Most experts say this negotiation won’t last long term and is just a method for one side to force the other side into an agreement.
What Does this Mean for Your Fleet?
It’s still too early to tell whether shippers and carriers will have long term effects from the economic downturn. If ports continue to have drops in incoming shipments, then the lack of work will trickle down to other industries. Shippers will have cost savings with waived fuel surcharges (if applicable), but without any place to deliver their containers, then the cost savings for fuel means nothing to their bottom line.
“I’m going outside of my contractual free time because I can’t return that box,” said Loya, adding that while this usually happens seasonally every year, it has been amplified tenfold by the coronavirus outbreak. “We are fighting for appointments [to drop off containers] because it’s all first come, first serve. The virus has put us in a situation where we can’t even get appointments, and the gates are shut down because there’s no labor being ordered in the yard because there’s no vessels coming in.”
-Robert Loya, VP, CMI West
Fleet managers will have to keep a close eye on news trends from these countries and make an educated prediction on the outcome. This will be a tough decision to make considering it effects all corners of their industry. The best option is to hold off on new purchases of vehicles and prepare for market volatility in terms of both fuel pricing and business activity.
A good way to increase your cost savings in this economically volatile market is to use encore protection for your Commercial Roadside Assistance programs. We can customize your needs based on your industry and give you one less thing to worry about when your employees are out on the road. Call us today at (844) 636-2673 for questions and more information on how Encore can help you!