Data shows the impact of COVID-19 from the perspective of the small parcel shipping market has accelerated. This trend was already occurring — which is the growth of ecommerce and increase in residential deliveries performed by the carriers. This was one of the many interesting points that came up during the first episode of Transportation Impact’s Let’s Talk Ship webinar series that aired on June 18, 2020.
Let’s Talk Ship guest John Howard, COO of Transportation Impact, provided several interesting data points and perspectives. This was a response to a question about what changes TI is seeing across its client base by analyzing the $1.5B in annual shipping spend TI manages. Here are some highlights.
Global Shipping Markets Are Recovering
Although TI’s customers are primarily focused on domestic freight (Truckload, LTL, and Parcel), it’s important to note that the disruption in the shipping markets extends far up the supply chain, with the ocean freight market still seeing a high number of blank sailings, although this is abating and Ocean volumes are increasing steadily week over week. Rates are increasing, too, by as much as 60% in some N. American lanes.
Big Disruptions in Retail Sales
In the small parcel shipping markets, data shows volume declines occurred the week of March 9 and continued for another four weeks until the week of April 6. At this point that a recovery seemed to begin with the largest weekly decline of approximately 24[JM2] % for our customers during the period. These volumes can be attributed to an ecommerce explosion which offset some[JM5] of the declines in other markets.
For example, if we look at ecommerce during the first quarter of this year, it was up about 15% versus the same period last year. That amount represented about 13% of all retail sales, which in April 2020 decreased sharply overall. But the government reported that May retail sales were up almost 18% from April[JM6] . Ecommerce accounted for as much as an estimated 30% of total retail sales for these last few months.
Overall, retail sales are still down about 6% from last year, and when you look at it compared to pre-COVID levels, sales are still about 8% lower than this past February, right before the crisis hit the U.S.
From the carriers’ perspectives, this rapid ecommerce growth manifested as a severe shift in package volume from Commercial Ground to Residential. Pre-COVID, TI’s client’s service mix was about 60% Commercial Ground deliveries vs. 22% Residential. Of the Residential volume, about 16% was Residential Ground and 6% a Postal-carrier hybrid (SurePost/SmartPost). But during COVID, the ratio has flipped, with Commercial Ground dropping to 40% of volume, and Residential deliveries now accounting for 46% of delivery volume.
Changes by Industry
The impact on volumes has also been industry-specific, according to TI data. Companies selling discretionary goods to consumers, for example, are either thriving or struggling during this time. Some industries seeing positive growth include athletic apparel and equipment, as well as sporting goods manufacturers and retailers. Companies producing fishing gear, bikes, and golf equipment — in fact, gear for almost any outside activity — have seen a tremendous uptick. Retailers and suppliers of office furniture and technology equipment have also done well, as more people have been setting up home offices.
Other strong areas include prescription medicines, medical supplies, and home and school supplies for kids doing distance learning. But other industries have seen their shipping volumes decrease. Companies that sell jewelry and automotive parts (particularly aftermarket parts), for instance, have struggled.
Shippers’ choice of service level has changed, too. Companies are moving away from premium service usage and choosing less costly options. Pre-COVID, the use of premium services within the TI client base accounted for about 17% of packages. But it dropped to as low as 11%. It’s likely that a big part of this decrease is a consequence of the carriers suspending their money-back service guarantees.
The impact of COVID on shipping volumes has been significant, but not altogether unexpected. It has pushed along a trend that has been underway for several years — which is the growth of ecommerce retail and the shift in package delivery demand to more residential vs. commercial.
As the effects of COVID evolve data and the market continues to adjust, shippers should pay attention to the rate and service changes carriers implement so they can continuously adapt their business to the new normal in small parcel shipping.