'The stores look emptier than they really are': Convoy Director on supply chains

Convoy Director of Economic Research Aaron Terrazas joins Yahoo Finance’s On The Move to address the state of supply chains and how the freight industry is faring over the pandemic.

Video Transcript

ADAM SHAPIRO: We've got you covered here at Yahoo Finance, as we watch this market sell-off. S&P 500 down more than 80 points, as is the Dow. It's off more than 670 points. NASDAQ is off more than 163 points.

We are all dependent not only on the doctors and nurses who care for us when we're ill, the grocery store and clerks who keep us fed, but the truckers who move the goods we so desperately need, especially food. We are so dependent upon them right now, and we want to take a look at what's happening in that industry. Joining us to discuss this is Aaron Terrazas, the Convoy Director of Economic Research. Convoy links truckers with producers who want to get something shipped somewhere.

It's good to have you here, Aaron. One of the things I wanted to ask you, first and foremost, as we look at this, agriculture, it represents you say about 10% of truck freight demand. What are you seeing there, because there are concerns about the supply chain being shipped.

AARON TERRAZAS: That's right. If you look at what is happening with agricultural output, it was pretty steady in March. We saw consumers, you know, increase their consumption and buy a lot of groceries, but that really started to pull back in early April. So capacity utilization for food manufacturers was around 80% in March. I think that's going to start dipping down in April, once you get that data.

JULIE HYMAN: So Aaron, hey, It's Julie here.

AARON TERRAZAS: Hey, Julie.

JULIE HYMAN: So does that mean there is a concern? I mean, we've all seen the reporting about shortages of certain items on shelves. From your perspective, in the getting that stuff from where it's made to where it's sold, do you think we're going to see further bottlenecks, and should people be-- or I mean, the authorities keep saying, don't stockpile things, but is that right?

AARON TERRAZAS: You know, I think some of the kind of the visual queues that we're seeing, the empty shelves in stores, a lot of it has to do with shifting consumer patterns. If you look at shopping behavior, consumer shopping has become a lot lumpier. People are making fewer, bigger trips. That means that the shelves look emptier for any given bubble of consumption.

That means trucks are finding these irregular patterns to have to try to restock shelves. I think the whole trucking industry right now is trying to figure out the new patterns, you know, to restock stores. The food is in warehouses. It's coming out of farms, but you know, again, the stores look emptier than they really are.

HEIDI CHUNG: Aaron, the supplies may be there, but what we're seeing also is that there is a breakdown in the supply chain, when you've got a breakdown in the workforce. Whether it is stores closing down, because somebody has tested positive, Amazon reporting the deaths of some workers. And so my question is is all of this going to lead to increased automation on the back end of this? Because what we're learning is that, even if you've got the best system in place, it just takes one case to really break things down.

AARON TERRAZAS: I think that's been one of the big lessons throughout the supply chain world from this crisis is how fragile and how vulnerable we were to human processes. You know, I think, obviously, so much of a lot of supply chain work can be done remotely, but there are things that require in-person presence. A lot of those things are always going to be there, but these things run more smoothly when they are automated. We found out with our kind of the matching of the trucks and shippers, you know, because that doesn't require human intervention, it continues to run smoothly throughout these disruptions.

JULIE HYMAN: Aaron, I want to ask you about the industrial production number that came out today. For March, we saw a drop of 5.4%. That is the biggest drop going back to 1946, and in your reaction note, you actually said March came in like a lion. Like there was strong demand in the beginning and month, and then went out like a lamb, so to speak, because we saw a big drop.

AARON TERRAZAS: Yeah.

JULIE HYMAN: What then does that tell us about where we are now? I mean, one would imagine that we're still near standstill in a lot of various areas.

AARON TERRAZAS: You're right. March almost felt like two different months in one for a lot of the industrial sector. We saw the surge during the first half of the month, and then once we had the kind of nationwide emergency declaration and the stay-at-home orders begin to increase mid-month, a lot of things really began to shut down. And we saw that in truck rates and truck tenderers. There was a big surge early in the month but a collapse later month.

Right now, when we look at truck demand, obviously, there is a big portion that comes from those durable goods manufacturers that are, for the most part, offline. You think auto industry, that's about-- industrial auto sector is about a third of truckload demand, that's running a 50% capacity right now. Meanwhile, you look at, again, food and grocery, that's a little bit below, it's, you know, in the 70% to 75% capacity, depending on exactly how you're looking at it. But so a little bit of a dip there, but still, you know, humming along.

ADAM SHAPIRO: So Aaron, to wrap this up, data does not lie, but it's dependent at least the answer you hope to get on the question you ask. So I'm curious, what is the data telling you, because you see before the rest of us truckers and producers and where things are lining up. What are you seeing about the ability to get this economy going again and how quickly?

AARON TERRAZAS: Yeah. I mean, if you look at truck load rates, truck rates had been declining even going into this crisis. They were, you know, feeling the effects of a soft industrial your last year. Right now, they've kind of given up about three or four months of gains. So we are seeing soft truck rates.

There's a real question in my mind, you know, how does this begin to turn around? There's so many unknowns around truck supply. In past recessions, we saw people who were unemployed in other fields enter trucking, because that was a good option for them. I'm skeptical that that's going to happen this time around.

ADAM SHAPIRO: Aaron Terrazas is the Convoy Director of Economic Research. We are fans of Convoy, not because we remember the convoy song from the 1970s. We appreciate the data and the insights you offer us. All the best to you and your team.