Americans who grew up in the 1970s got used to rapid price inflation. Families stuffed freezers with meat and topped off gas tanks before prices rose next week, and unions demanded annual increases “to keep up with the cost of living.”
Today’s economy, stalled by coronavirus shutdowns that won’t ease quickly, risks the opposite problem. Even with government borrowing soaring to record levels, “what we will be battling for quite some time is deflation,” warns Richard Vague, the long-ago JPMorgan Chase credit card chief who runs Pennsylvania’s Department of Banking and Securities.
Deflation means that prices drop, employers and workers make less, and tax collections tumble. When it goes on long enough, deflation reduces investment and cripples local governments and workers’ incomes.
Peter Latta, third-generation chief executive of the West Chester trucking company A. Duie Pyle Inc., which employs 3,000, sees it firsthand. A month after Gov. Tom Wolf ordered all but “life-sustaining” businesses to close, leaving one in five Pennsylvanians out of work by this week, shipping continues to drop.
“Pennsylvania was hit earliest," Latta said. “Every other state in the Northeast seemed to domino from there.
“We restock the shelves of America," he said. What we handle goes right into the Gross National Product,” the common measure of American industry, services,and growth. “If you peel back the side of our trailers, you’d see consumer commodities, industrial, retail, hospitals.
The shutdowns have meant “a 32% reduction in our daily shipment volumes,” he said.
Latta’s century-old company, which carries multiple small loads in large trailers mostly along the I-95 corridor in the northeastern U.S., has met the drop with its own cuts.
“We survived the Great Depression and World War II, and deregulation,” which wiped out many rivals “less than truckload” (LTL) carriers. “Last year we survived a ransomware attack; we didn’t pay the ransom. But now Covid 19 is hammering every business. There is no playbook on this pandemic, nothing to look at historically.
"One of our core values is to do the right thing for the long term, even though it’s painful in the short term. We took a couple of measures, early. Not out of desperation. But to remain strong.”
He started at home. “My brother and I are not drawing any salary," Latta said.
Most office workers, even in the call center, were sent to work from home.
What to do for drivers amid the drop in demand and the need for worker safety? “We are a come-to-work culture," Latta said. "But some of the drivers started telling me, ‘I’m scared coming to work, I have this other condition.’ ”
He offered furloughs — workers could stay home, give up paychecks, remain on the health-care plan, and apply for state unemployment, plus the federal coronavirus supplement of $600 a week. About 600 staff asked for the furlough. The company granted 360.
There was still more labor than work. On April 13, the company imposed a 10%, two-month pay reduction, with managers taking a larger 15% cut.
“I made a five-minute recording" to announce the cuts, Latta said. “That was the hardest.
“Our goal is to make sure we survive,” he said. "We are all in this together. We’re a strong company financially. But nobody knows the last chapter here. So we thought taking these measures earlier rather than doing nothing, hoping for the best, and having to do something more drastic later.”
A. Duie Pyle is still hauling to grocers, hospitals, nursing homes, prisons, and other consumer centers. Shipments to grocer Wegmans are up. But there’s been a lot less to haul to homebuilder Toll Bros. as construction shut down.
The increases “are not enough to offset” the declines, Latta said. “We’ve also had to ask some customers for extended payment terms.”
Latta, a lawyer and CPA, says the family firm has long avoided borrowing money and generates its own working capital. Firms that borrow to expand — or the many small firms that survive check to check — are more vulnerable.
In short: “Our goal is to keep the team intact and bring it out as we come to the other end of the tunnel," in an America where prices and pay have taken big hits.
“A dark era is settling over the trucking industry,” says Jeffrey Tucker, head of Tucker Co. Worldwide Inc., a Haddonfield firm that matches producers, consumers, and cargoes, and has tracked the rise and fall in cargoes since the coronavirus closings.
For the first time since the bottom of the late 2000s recession, some truckers are calling in search of any load that keeps them rolling with little regard for price: “'Whatever you have, we’ll take it. We don’t care what the price is.”
Truckers that serve drugstores, hospitals, and groceries are busy. Everyone else — the 240,000 U.S. trucking firms, most with fewer than 100 drivers — “is hurting very badly right now.”
Prices are falling. Big manufacturers, with orders slowing, “are unilaterally changing their terms,” Tucker said. "If they paid within 60 or 90 days, they are waiting until 120 days. But a lot of [owner-operators and small firms] live day-to-day on that cash flow. All of a sudden, you push that out 30 days.” There goes fuel money for that next trip: "And you drop like a rock off a cliff.”
Citing industry data, Tucker says average spot rates for same-day hires of standard 53-foot trailers have dropped 8 cents a mile in the past two weeks, to $1.78. Volumes are down more, around 20 percent, so rates will likely keep falling.
Every week, Tucker looks for the market to steady. “But this week it continued down," he said. "There’s just less freight, with 22 million people out of work, and so many factories mothballed.”
The Boeing military helicopter plant in Ridley Park, closed since late March, is supposed to reopen Monday. Tucker expects a “bump" in new orders as other employers slowly reopen.
But “it’s going to be gradual" and uneven, he predicts: "We have to wait for enough vaccines,” which experts predict will take at least 18 months. By then, “I expect there will be a fairly big shakeout of trucking companies that don’t have capital or a base in that ‘essential’ marketplace.”
He’s most worried about the drivers. “Drivers’ average age is in their 50s,” many lack exercise and develop diabetes or other conditions, he said. Too many die young: “We have to do more to protect them. we have to outfit them with masks and gloves..”
News Friday that Amazon is overloaded with customers and is limiting orders represents another warning sign, Tucker adds. “If they can’t keep up with consumer demand," he said, "that creates another bottleneck, another impediment to the free flow of freight” deflating the economy.