Wednesday, April 1, 2020

Trucking Operations Paramount to Food Security




During any potentially long-term crisis, particularly something as onerous as an “invisible enemy” like a lethal pandemic, our primal survival instincts come to the forefront such as the priority of food & water. For this reason food security, even in the USA which is the world’s breadbasket, can come under pressure because of nationwide lockdowns and compromised supply chains.

Global & Domestic Food Security

The following chart The State of Global Food Security provided by the Economist Intelligence Unit and presented by Statista 23 March 2020, an online German statistical service, is based on the December 2019 model with the USA ranked # 3 overall and safety and within the top 10 in the categories of availability, affordability and quality & safety. A comprehensive USA-specific breakdown can be accessed through the country details section. The regions with the highest level of food security are in North America, Northern Europe and Australia.




From a global macro-perspective the USA looks as if it’s in great shape. However upon examining the micro-economic reality, the socio-economic inequity is apparent. Additionally, the figures fail to capture the millions of households that struggle to put food on the table despite the 11-year bull market. With furloughs and layoffs these households with limited, if any savings, will be unable to buy food even if the shelves are well stocked.

The following chart provided by Statista, a German online statistical service, 29 August 2018 is from a study of 7,600 adults by The Urban Institute entitled A High Share of Americans Face Food Insecurity, that lifts the hood from the total American food production of the many households facing food insecurity.


Strains in the food supply chain are emerging to provide for the under-served population in NYC according to the 26 March 2020 article in The Daily News Help Us Feed the Hungry Now: NYC Food Aid During Coronavirus resulting in delivery shortages.

Logistical Challenges & Roadblocks

Despite cheap & plentiful fuel, high-demand business to deliver medical & foodstuffs on empty roads the burden on the trucking industry is enormous and could face nasty disruptions. The Financial Times article 25 March 2020 entitled How Coronavirus is Affecting Pasta’s Complex Supply Chain discusses the sometimes delicate linkages between food sources and final deliveries. To paraphrases them:

1.    Wheat production is highly mechanized vs fruits & vegetables which are labor intensive. Labor is impacted by migration restrictions thus potential labor shortages.
2.    Though the USA is self-sufficient it still imports more than 50% of fresh fruit. An example is avocados and other exotic fruits which may be short supply.
3.    Potential disruptions at chokepoints such as ports, production/distribution staff shortages due to illness, closed borders.

THE TRUCKING INDUSTRY

The following list taken from the article 11 Incredible Facts About the $700 Billion US Trucking Industry, in Markets Insider, 3 June 2019, provides a comprehensive perspective as to the criticality of truckers’ role in America’s economy and security.

1.    In 2017, the US trucking industry posted revenues greater than the GDP of more than 150 nations.
2.    Approximately 5.8% of fulltime jobs are related to trucking.
3.    Walmart alone employs 8,600 truckers.
4.    In 2017, truckers moved 10.8 billion tons of freight.
5.    Trucks move more than 70% of goods transported around the USA.
6.    More than 40% of all trucking jobs are held by minorities, 6% by women.
7.    Not one of the regulators charged with overseeing the trucking industry was ever a trucker.
8.    Most grocery stores would run out of food in three days if there was no long-haul truckers stopped driving.
9.    Many experts believe that the trucking industry needs to hire 900,000 more drivers.
10. Most truck drivers earn less than most Americans in annual income.
11. The average professional long-haul driver logs more than 100,000 miles per year (vs the average American motorist who travels 13,500 miles annually)

According to the American Trucking Associations (ADA) there are 3.5 million truck drivers of which 9% are owner-operators, all of whom have an average age of 55.

Trucking Heavy Lifters – Investment Considerations

This is a short list of the largest American trucking firms:

·         Knight-Swift Transportation (NYSE:KNX)
·         JB Hunt Transport Services, Inc. (NASDQ:JBHT)
·         YRC Freight (NASDQ: YRCW)
·         XPO Logistics (formerly Conway Freight) (NYSE:XPO)
·         Schneider National (NYSE:SNDR)

For an industry-wide investment consider Dow Jones Trucking Index (DJUSTK).

Truckers’ Demographic Dilemma

According to the figures, truckers represent a demographic who are most at risk for becoming seriously ill from Covid-19. The trucker’s average age (55) is a major factor with respect to resilience particularly in a profession that doesn’t have a healthy lifestyle and general stress that aggravates underlying health conditions. Nationwide the available first responders, medical staff and law enforcement have been reduced because of Covid-19 exposure and subsequent self-quarantine.

According to the article published by MSN Money 12 March 20202 How Coronavirus Could Hit America’s 1.8 Million Truck Drivers 38% of truck drivers lack health insurance with unhealthy lifestyles which are considerably higher than the average population encompassing obesity, morbid obesity, cigarette smoking and diabetes. Additionally because of the nature of their work maintaining social distancing is difficult.

The shortage of qualified truck drivers has persisted for many years as articulated in the NPR article Trucking Industry Struggles with Growing Driver Shortage, 9 January 2018. A major food distributor executive stated in Crain’s New York Business 27 March 2020 article Meat Piles Up In Warehouses as Frightened Truckers Stay Home, Supply isn’t the problem. Warehouses are full of beef and other forms of protein. There just aren’t enough truckers to bring the food into stores.” Another major food distributor executive stated, “Up to 60% of his drivers are no longer showing up for work because they fear that making deliveries could expose them to the coronavirus.”An interview in an article entitled Produce Trucker’s Logistical Nightmare with a produce trucker in the publication The Counter 26 March 2020 underscores truckers’ worries.

The irony is that truckers represent the white knights to deliver the antidote while at the same time are the potential carriers of Covid-19.

Spare Parts

Because the global supply chain is compromised with a slow and uneven ramp-up from China, it’s increasingly difficult for truck fleets to acquire spare parts for their vehicles from normal wear & tear. This may force trucking companies to resort to cannibalizing parts from other trucks which exacerbates the domestic supply chain.

The following chart provided by UN Comtrade Database and presented by Statista US Car Industry Most Reliant on Chinese Parts underscores America’s reliance on China for spare vehicular parts.


Danger of Social Unrest

Another dark and rarely mentioned downside is that despite plentiful available food in stores, there’s a growing societal powder keg. Millions of households struggled to purchase food during good economic times are more vulnerable than ever because of the sudden layoffs. Most of these households live paycheck-to-paycheck and have minimal savings, if any. Should the crisis go sideways, law enforcement will be unable to protect food sources and contain a starving, desperate citizenry.

The visually dramatic jobless claims can be viewed on the following chart entitled Initial Jobless Claims Are (Quite Literally) Off the Charts, by the US Department of Labor and provided by Statista, a German online statistical service.




In order to survive, the mostly law-abiding citizenry will utilize any means necessary to feed their families including looting of food stores and hijacking of commercial vehicles. If this becomes commonplace, truck drivers will refuse to drive which will worsening an already deteriorating supply chain. To keep America from devolving into civil unrest, supply chains must be maintained because “failure is not an option.” Nonetheless I’m bullish on the trucking industry as an investment.

Recommendation

Truckers are the logistical linchpin of our security. As we progress from the depths of this pandemic to a recovery, albeit uneven, truckers will remain the critical element. For this reason I’m bullish on the trucking industry as an investment whether specific companies or via the Dow Jones Trucking Index.

Copyright 2020 Indo-Brazilian Associates LLC

Indo-Brazilian Associates LLC is a NYC-based think-tank and advisory service that provides prescient beyond-the-horizon contrarian perspectives and risk assessments on energy investments, geopolitical dynamics and global urban security.



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