NORTH AMERICA LONG HAUL TRANSPORT MARKET - GROWTH, TRENDS, COVID-19 IMPACT, AND FORECAST(2022 - 2027)

Due to COVID-19, long-haul movements of international containers decreased, as fleet operations recalibrated to moving essential consumer goods from local and regional warehouses to retail establishments. Overall, the pandemic has decreased trip lengths. As a result, the US trucking business is becoming more short-haul-oriented than ever, with capacity and freight demand shifting away from longer-haul, one-way truck lanes as the COVID-19 pandemic and recession reshape the transportation landscape. For example, in 2020, during March and early April, the number of long-haul trips that covered more than 1,000 miles dropped by 10% to 22.7%, as the COVID-19 impacted businesses in the United States.

According to an industrial survey, in the United States, the average distance of haul before and during the pandemic (long-haul - 1,000+ miles per trip) was 32.7% and 22.7%, respectively.

According to industry reports, short-haul or local trucking employment is recovering much more quickly from the COVID-19 pandemic-driven recession than long-haul truckload employment.

Local trucking employment increased by 1.1% Y-o-Y to 268,700 jobs in January 2021, while long-haul truckload employment was down by 3.8%, falling to 499,900 jobs, largely affecting truck drivers.

In contrast, the PPI (BLS Producer Price Index (PPI)) for the long-haul truckload business rose 9.6% Y-o-Y in February 2021, after climbing 9.8% in January 2021. As a result, the long-haul LTL PPI rose 2.9% Y-o-Y in February 2021, accelerating from a 1.5% annualized increase in January 2021.

In the United States, a fundamental shift in the market occurred in October 2019, when long-haul freight volumes grew faster than local volumes (Y-o-Y) for the first time throughout the year. This trend became stronger in early 2020, with loads moving across greater than 800 miles averaged over 10% higher (Y-o-Y).

Long-haul volumes are more disruptive to the balance of truck supply in the United States, as trucks spend more time on the road with less availability to pick up freight. In addition to occupying more time to move, long-haul freight redistributes trucks across the country.

Key Market Trends

Growing Automotive Market in the Region

The increasing focus on reducing vehicular emissions has shifted the focus of the automotive industry toward electric vehicles, which is driving the automotive market. With growing environmental concerns, governments and environmental agencies are enacting stringent emission norms and laws that may increase the manufacturing cost of electric drive trains and fuel-efficient diesel engines in the coming years.

The new United States-Mexico-Canada Agreement (USMCA) is one development that may bring both challenges and opportunities for American carmakers and their global supply chains.

While NAFTA originally required automakers to use 62.5% of North American-made parts in their cars to be imported duty-free, the new agreement aims to gradually raise the bar to 75% by 2023, which may incentivize automakers to increase the number of North American-made parts that they use in their cars and light trucks.

The USMCA also mandates that automakers manufacture 40% of their motor vehicles in facilities where assembly workers earn at least USD 16 an hour. While average wages are even higher than those for auto assembly workers in Canada and the United States, they are not in Mexico. In recent years, several US automakers have shifted production to Mexico, in order to take advantage of the lower labor wages.

The role of incentives and mandates is key for the high demand for electric vehicles. The governments are providing several incentives to encourage the sales of electric vehicles, as all these countries are focusing on reducing their vehicle emissions.

In the United States, the EPA and NHTSA have proposed implementing the Safer Affordable Fuel-Efficient (SAFE) Vehicles rule from 2021 to 2026. The rule may set the standards for corporate average fuel economy and greenhouse gas emissions for passenger and light commercial vehicles. In addition, the Zero-emission Vehicles (ZEV) Program requires OEMs to sell specific numbers of clean and zero-emission vehicles (electric, hybrid, and fuel cell-powered commercial and passenger vehicles). The ZEV Program aims at putting 12 million ZEVs on the road by 2030.

However, the COVID-19 pandemic across the world and the implementation of the United States-Mexico-Canada (USMCA) trade agreement in 2020 remain a few crucial factors that are likely to hinder the market growth in the coming years. Among the countries in the region, Mexico has emerged as one of the largest auto manufacturing hubs, as automakers from the United States have established their production facilities there, owing to the many incentives offered by Mexico, such as low production costs and tariffs.

Growing Cross-border Trades from the United States

More than 50% of freight to North America from the United States is carried through trucks.

The freight demand is expected to increase in the future. Thus, the total weight of shipments transported domestically, by all modes, is expected to reach 20,940 million metric ton by 2045, out of which 14,235 million metric ton may be transported by trucks.

As per the Canada Border Service Agency (CBSA), 88,290 truck drivers entered Canada from its land border crossings with the United States from March 23rd to 29th, 2020. During the same timeline (week) in 2019, 115,239 truckers entered Canada.

Border crossings are potential bottlenecks in the freight transportation network. The Federal Highway Administration monitors truck crossing times at 15 designated truck lanes at the US-Canada border crossings. The US Department of Transportation, in partnership with the Texas Department of Transportation, also measures transit times from Mexico to the United States at the Bridge of the Americas and the Pharr-Reynosa International Bridge.

Competitive Landscape

The market is fragmented, with a large number of players. The trucking industry is currently marked by high levels of competition as each player tries to position themselves as the best service provider in terms of efficiency, effectiveness, and value for money. As a result, niches and sub-niches are developing within the sector to increase each player's competitive advantages.

The trucking industry has survived many crises and changes. There is nothing to suggest that the current challenges facing the industry are going to break it. On the contrary, it seems that major industry players such as Knight-Swift are taking advantage of the opportunities that come their way.

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• The market estimate (ME) sheet in Excel format
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