Even before the coronavirus pandemic brought the US economy to an almost total halt, some economists were warning that the United States was on the brink of a recession. However, there is no doubt that the pandemic pushed the US economy over the edge.
For some chemical haulers, it was like the US economy hit a brick wall. Over the last couple of months, Bulk Transporter contacted a number of chemical haulers to learn how they fared during the COVID-19 shutdown.
Fleet managers discussed steps they took to weather the crisis and protect drivers and other employees from the risks posed by the COVID-19 virus. A majority of the fleets applied for and received federal funding under the Paycheck Protection Program, which enabled them to limit or avoid layoffs. Most adopted extensive decontamination and sanitizing policies for facilities.
Depending on chemicals hauled, some fleets saw a significant reduction in shipments. Others actually found new business hauling chemicals used in sanitizers and other products needed to fight the coronavirus.
Overall, fleet executives said their operations began to bounce back once the US economy began reopening, but revenues probably will be down for the year. They also said they are seeing moderate to strong downward rate pressure from some chemical shippers and third-party logistics operations.
Carbon Express
“At the worst of the pandemic shutdown, our business was off 70% to 80%,” says Steve Rush, president and founder of Carbon Express. “We’re now down only about 18%, and almost all of that is oilfield chemicals, such as fracking liquids and other polymer-based products. We still were making money in March, but April got worse by the week. We started to see the light again during May. Now we’re running on all cylinders.
“Prior to the pandemic, we were running 72 tractors. We’re now down to 62 tractors. We had to lay off about 10 drivers before we received help from the federal Paycheck Protection Program. We were able to bring back all but two part-time employees.”
Rush adds that demand for oilfield chemicals was softening even before the pandemic, but shipments almost completely dried up during the shutdown. The carrier’s lubricants business (motor oil and industrial lubricants) also went into the tank.
“Lubricant shipments were off 85% to 90%,” Rush says. “We had one customer in Canada that usually takes four and a half loads a week. “We did just two loads in one month during the worst of the pandemic. That business has recovered.”
Some successes
While there were a lot of negative developments, Carbon Express still was able to count some successes. Water treatment chemical shipments to New York City increased 10% to 20%, accounting for five tanker loads a day.
In late May, the carrier was chosen for a project on the West Coast that is keeping five trucks and drivers busy. “We had the right equipment for the job,” Rush says.
A flatbed operation was added and is drawing loads from existing customers. The carrier currently has five flatbed trailers in operation. “This was a good fit because a majority of our drivers already have flatbed experience.”
Rush says he knew changes would be needed to address the challenges of the coronavirus pandemic, but he didn’t realize how significant they would be. “I believe our business will be different when this is over,” he says. “We’ll be making some permanent changes in the way we operate.”
Communication with drivers became a key concern. “Our biggest challenge was staying in touch with our drivers while they were out on the road,” he says. “We’ve started holding twice weekly conference calls with our drivers, and the results have been amazing. We start with a prayer and then we ask about operational issues such as whether paperwork for a prior trip was missing when a trailer was picked up or whether the pretrip for the previous load was done correctly. We’re getting great recommendations on best practices.”
Safe working conditions are getting a lot more attention. “We don’t use any driver teams, and we remind our drivers to socially distance when they are around others,” Rush says. “Drivers keep sanitizer, wet wipes, and masks in the trucks. We thoroughly wipe down the cab interior before a tractor goes in the shop. The measures are working. Only one driver got sick with COVID-19 to date.”
Customers also are following good safety procedures. Loading operations for many loads, especially those going into New York City are now no contact. Carbon Express is doing more drop-and-hook with trailers.
Rate pressure
Rush says one concern he has is with the pressure for lower rates that is coming from some chemical companies and logistics services. The economy is down a little but not as much as it might seem.
“I believe some brokers are out of control and are using the pandemic as an opportunity to depress rates,” he says. “Some shippers also are asking for rate reductions due to the pandemic. This is a service business, not a spot market for cheap rates.
“We pay our drivers hazard pay, because we are—in effect—sending them into a war zone where they are unable to see the enemy and have no bullets in their gun. This isn’t the time or place for rate reductions.”
KAG chemicals
John Rakoczy, executive vice-president of chemical and specialty products at Kenan Advantage Group, says the chemical transport side of KAG was able to retain capacity with just a 15% drop in loads.
KAG Specialty Products Group runs 1,500 tractors and 3,800 trailers. The group employs 1,480 drivers. The group was formed when KAG merged Transport Services Corp, Disttech, and Dedicated Transport. The group hauls a wide range of general and specialty chemicals and serves customers across North America.
“Easter Week brought the worst of the pandemic shutdown for us with cataclysmic projections of economic disaster,” Rakoczy says. “It was a tough time, but things are getting better now. We believe our revenues could be down about 10% through the rest of this year, which is manageable. In fact, I think we’ll find that the terrorist attacks of September 11, 2001 had a bigger short-term economic impact.”
“We think we reacted reasonably well to the impact of the coronavirus pandemic. It took a lot of work, but we knew we had to be resilient and find ways to diversify. For instance, we looked for opportunities to haul sanitizer ingredients, more water treatment chemicals, and ethanol.
“Our goal was to keep our drivers working. We cross-trained drivers across the entire KAG system on a wider range of cargoes. Cross training helps make drivers recession proof. We brought in some fuel division drivers, and we used fuel tankers to haul ethanol. Our drivers stepped up to the challenge and didn’t miss a beat. We had no load turn-downs.”
Load counts are rising steadily. For instance, chemicals used in the automotive industry are moving again. Load counts are climbing by about 10% a week.
Some drivers and other employees were furloughed during the worst of the pandemic shutdown. The KAG groups are now steadily bringing employees back.
Driver health
In addition to keeping as many drivers as possible on the job, the company worked aggressively to protect driver health. “We had just 12 drivers affected by COVID-19 across all of KAG,” Rakoczy says.
Following state rules, the Specialty Products Group set up procedures for sanitizing trucks after every trip. Cleaning cycles were increased for offices and terminals. The company ceased slip-seating of tractors and close-proximity driver training.
At the Specialty Products Group’s 20 in-house tank wash racks, workers are required to wear face masks, and there is no overlap between work shifts. “Since fewer tank trailers are being washed, that’s not a problem,” Rakoczy says.
Even as it addresses the challenges of the COVID-19 pandemic, the Specialty Products Group management team has focused on keeping the tank truck carrier on a growth path.
“Our mission is to continue growing this operation,” Rakoczy says. “We’re continuing to take in new trucks on a regular schedule, and new tank trailers are being delivered. We haven’t cancelled any fleet orders. On the financial side, most of the loads we haul are under contract. We are paying more attention to revenue collection.”
Slay Transportation
Slay Transportation Co Inc, St Louis, Missouri, came through the coronavirus pandemic in relatively good shape, according to Gary Slay, president. The year started strong for the chemical hauler and revenues should recover most of the ground lost during the pandemic shutdown.
With 18 terminals, including four in the Houston, Texas area, the tank truck carrier operates 470 tractors and 1,200 trailers, including tank trailers, pneumatic bulkers, tank container chassis, and vans. The fleet is part of a diversified operation that includes a full range of ISO tank container depot services and warehousing and packaging of various chemical products.
The company handles mostly intermediate chemicals that go into durable goods. Cargoes include products such as isocyanate, PVC resin, and caustic soda. The carrier also hauls liquid feed supplement for livestock.
“We have a good mix of business, and we were down just 15% to 17% during the worst of the pandemic shutdown in April and May,” Slay says. “We believe business will pick up through the rest of this year, and we should be down no more than 5% to 7% in revenues across the board for most of the products we handle.”
While there have been some adjustments, cargo rates are holding up well. Slay says many contracts are for dedicated business, and the carrier had just completed a five-year contract extension with a key customer.
A loan through the federal Paycheck Protection Program gave Slay Transportation some additional breathing room. “We were able to keep our drivers, mechanics, and wash rack workers on the job,” Slay says. “Employees have even been working some overtime.”
Ernesto Martinez, executive vice-president of Slay Transportation, adds: “We have plenty of activity now to sustain operations, and drivers are generating good income and revenue. Total miles per week are still down, but load counts are picking up. The trend is moving in the right direction.
“Tank container operations are still showing more impact from the pandemic. Imports are still slow, while exports are staying steady. We have an imbalance in containers right now at our Baytown (Texas) depot.
“We know the container market will bounce back, and we’re ready. We just finished a new loaded tank container storage yard in Baytown. The 11-acre facility has room for more than 2,000 loaded tank containers, and we bought a new Taylor loaded lift to move containers around the facility.”
Exposure protection
Even as demand for chemical transport rebounds, Slay Transportation is making sure its employees are protected from the coronavirus. Some administrative personnel and dispatchers continue to work from home. Drivers and workers at the terminals and warehouses are provided with Centers for Disease Control-approved personal protective equipment.
Facility work areas have been adjusted to accommodate social spacing. Anyone entering a Slay Transportation facility is to fill out a COVID-19 questionnaire outlining steps for avoiding exposure to the virus. A list of precautions for COVID-19 is posted at the entrance to facilities.
Lennox Micro Pure air filters were installed at some terminal offices to trap bacteria, viruses, and pollen. The cleaning crew wipes down and sanitizes all work surfaces daily, and a Wagner spray system is used to lay down a disinfecting fog throughout the facility once a week.
Sluggish sector
Even without the pandemic shutdown, there were signs that chemical demand was slowing. The Chemical Activity Barometer (CAB) from the American Chemistry Council (ACC) fell 2.6% in March on a three-month moving average basis following a downwardly-revised 0.1% gain in February.
At the time, Kevin Swift, ACC chief economist, cautioned: “ACC believes a recession to be occurring when the barometer declines for three consecutive months and falls 3.0% or more from the peak. As of March, the CAB had declined for two straight months and fallen 8.9% from the peak.”
April and May CAB readings showed further erosion. “The May CAB reading is consistent with a recession, but given a small unadjusted decline of only 0.3%, one that may bottom out.”
Production-related indicators declined in May according to the CAB report. Trends in construction-related resins, pigments, and related performance chemistry were negative, as were resins used in appliances, light vehicles, machinery and other durable goods.
Plastic resins used in packaging and for consumer and institutional applications were mixed. Performance chemistry was negative and US exports were weak. Equity prices are improving and product and input prices are firming. Inventory and other supply chain indicators were negative.
COVID-19 projection
At the beginning of Q2 2020, ACC issued a special report on the impact of the COVID-19 pandemic. “While there is significant uncertainty in the projections, short-term risks are to the downside before a possible rebound in 2021,” Swift said.
According to the update, US chemical volumes are expected to fall 3.3% in 2020 before rising 5.2% in 2021. Basic chemical volumes will drop 2.9% in 2020 before rising 6.7% next year. Chemical shipments are expected to fall 10.0% in 2020 before rebounding by 7.8% in 2021. Anticipated declines reflect struggling end-use markets and export customers for US chemistry products.
Partially offsetting weakness in US chemical production is strengthening demand for chemistry used in the response to COVID-19. Among the many chemistry solutions used in the fight against the virus are synthetic materials for personal protective equipment (PPE), ingredients for cleaners and disinfectants, and plastics used in medical equipment such as ventilator machines and IV bags.
Automotive and building and construction are key end-use markets for chemistry. According to ACC projections, vehicle sales will fall sharply to 13.1 million in 2020 before improving to 15.5 million in 2021—down from 16.9 million in 2019. Housing starts will tumble to 1.08 million before edging to a higher 1.19 million pace in 2021. Specialty chemical volumes will decline 4.4% in 2020 before rebounding 3.3% in 2021.
“Industrial activity started the year on a weak note even before news of COVID-19 emerged in late January,” said Martha Moore, senior director of policy analysis and economics at ACC. “Then supply disruptions from China began to percolate through the US industrial sector. With further shocks to aggregate demand, US industrial production is set to fall 8.4% this year before growing by 2.6% in 2021.”
Global gross domestic product is expected to contract by 2.5% in 2020 before rebounding 6.0% in 2021, according to ACC’s update. As the industrial sector has been dealt a series of blows from closures related to COVID-19, demand destruction and logistical challenges, global industrial production will fall 3.9% in 2020 before improving 5.6% in 2021. Trade and commercial activity have experienced an unprecedented collapse, and world trade is seen shrinking 10.5% in 2020 before improving by 9.9% in 2021.
US GDP is projected to fall by 4.0% in 2020 before rising 4.0% in 2021. Consumer spending will decline by 4.6% in 2020 before rebounding 4.4% next year. Economy-wide business investment was already lower prior to COVID-19 and is expected to decline 9.7% in 2020 before showing 3.0% growth in 2021.
With more than 20 million people filing unemployment claims in the past four weeks (in March and April), the unemployment rate is expected to reach over 13% by the end of Q2 2020 before steadily easing through 2021. After three years of gains, chemical industry employment is expected to decline by 28,000 (5.1%) in 2020. Chemical industry capital spending declines 2.0% in 2020, but grows 1.8% in 2021.
ACC’s analysis presented an assessment of current conditions and expectations using economic data and publicly available information through April 14, 2020. For the US chemical industry, ACC used its own model (supplemented by other forecasters), projecting likely paths for the industry in 2020-2022. In addition, association officials took into account forecasts made by manufacturing economists, economic forecasting consultants, and other institutions.
The projections in this release rely on a baseline scenario under which US COVID-19-related restrictions were lifted before the end of Q2 2020. ACC also developed a “pessimistic” scenario under which US restrictions are extended through Q4 2020.