Construction outlook:
Construction outlook:The Federal Reserve announced an emergency 50-basis-point (bps) rate cut last Tuesday, lowering its target Fed Funds range to 1-1.25% from 1.5-1.75%. The Fed cut is a reaction to the rising economic risk posed by the coronavirus becoming a global pandemic and the knock-on effects to global supply chains and consumer spending. The effect on the real economy from the latest rate cut is debatable given the difficulty in fighting a spreading virus with monetary policy. However, the most direct and immediate effect of the rate cut is likely to be a boon to housing via lower mortgage rates, for both refinancings and new home purchases. This could positively affect flatbed outbound tender volumes (FOTVI.USA) and tender rejections (FOTRI.USA) in the coming months
Truckload capacity
Reefer volumes have ticked up over the past week, but the majority of this upswing is from increasing dry van volumes. Our outlook for volumes for the remainder of the first quarter is blurred by the effects of the coronavirus on global trade flows. China is reporting that 60-70% of capacity is currently back in production, but other datasets tell a vastly different story. Until we get more viable evidence from outside of Beijing, it is difficult to forecast the full impact to U.S. truckload volumes in the short term.
Global trade
China has been slowly recovering from the coronavirus outbreak, and production is slowly but surely increasing to 70-80% of the country’s total capacity. Backlogged shipments in Chinese ports are beginning to flush out of the system, but with ocean carriers cutting a substantial amount of capacity due to the recent uncertainty surrounding the outbreak, space will come at a premium rate in the coming weeks. Ocean carriers had little choice but to cancel the general rate increase (GRI) on March 1, but now that large volumes are beginning to move, shippers, NVOCCs and freight forwarders can expect that on March 15, a large (and unseasonal) GRI will be implemented in hopes that ocean carriers can begin recouping lost revenue from the past couple of months from a combination of Chinese New Year and the coronavirus outbreak.
