Transportation

American Road & Transportation Builders Association

Alison Black, Senior Vice President & Chief Economist

The U.S. transportation construction market is expected to shrink 5.5 percent next year, driven primarily by the severe economic recession caused by the coronavirus pandemic, according to the annual forecast released by the American Road & Transportation Builders Association (ARTBA).

Overall, the value of work is expected to drop from $294.2 billion in 2020 to $278.1 billion in 2021.

The expected market contraction follows a record year for most transportation sectors in 2020. While Pennsylvania and Washington state temporarily shut down projects in the spring, the rest of the country classified transportation construction as an essential industry.

Transportation improvements continued with enhanced safety protocols in place. As a result, total transportation construction activity—after project costs and inflation—is expected to increase by nearly 4 percent in 2020, with significant gains in highway and street construction (+8.3 percent), subway and light rail work (+8.8 percent), airport terminal and runway construction (+7.2 percent), and port and waterway spending (+12 percent). Bridge and tunnel construction was the exception, with activity falling 20 percent in 2020, reflecting several broader market trends including a focus on smaller structures.

The major drop-off in transportation user fees caused by COVID-19 stay-at-home orders initiated last spring, high national unemployment, and the decline in public transit use and demand for air travel are the key factors affecting the outlook.

How this revenue shortfall affects the construction market will vary. The outlook for transportation construction activity, although forecast to decline overall, will be mixed across the country as owners employ different strategies to balance transportation budgets.

Among the differing strategies:

• Delaying projects or cutting capital programs. In 2020, transportation authorities in 18 states delayed at least $12 billion in projects.
• Utilizing bonds, rainy day funds, and other revenue measures to preserve or increase capital spending.
• Reducing operational costs by delaying maintenance projects, furloughing workers, freezing new hires, and cutting other expenses.

There are two major factors that will impact transportation construction activity through 2021 and beyond— the broader economic recovery and the passage of successor legislation to the 2015 Fixing America’s Surface Transportation (FAST) Act.

The first factor is that state and local governments historically have pulled back on transportation investment when facing significant budget pressures. Multi-year recessions can have a lingering impact on highway and bridge programs as state and local revenues decline. After the Great Recession of 2018, it took eight years for the real value of state and local highway and bridge spending to reach pre-recession levels.

The one-year funding authorization extension for the FAST Act variable is the reauthorization of expires Sept. 30. Over the last decade, the federal-aid program has accounted for over 50 percent of annual state highway program spending, and more than 66 percent of transit capital outlays.

A significant and sustainable increase in federal investment could offset potential program cuts in some states while supporting additional work in states that will continue with projects as planned.

American Trucking Associations

Bob Costello, Chief Economist

By the end of March, when much of the U.S. was under lockdown orders, trucking companies and their truck drivers were called upon to deliver essential PPE, meet the demands of stockpilers and address unfounded concerns about food shortages. In the areas approaching lockdown orders, it was surge activity like the industry has rarely seen. Additionally, customers and businesses shifted even more purchases online, boosting ecommerce freight significantly. Truck drivers received lots of positive media highlighting that they are truly heroes on the highway.

When the initial rush in spending collapsed in April, not surprisingly, for-hire truck tonnage fell 10.3%, the largest single month drop since March 1995. Most of the decline was among carriers shipping manufactured parts, fuel, and food to restaurants. But by summer, retail freight, especially ecommerce related, started to pick up because households started spending more on goods relative to services. The 2020 holiday freight market was good for trucking companies. And we have seen a pick-up in non-retail freight, including energy and manufacturing related, although both are still below pre-pandemic levels. Construction freight around housing starts and home remodeling is also strong.

Due to the uneven nature of the recovery, some trucking sectors saw strong 2020 volumes and even posted year-over-year gains for the year. Conversely, some sectors, while off of the lows last spring, were not only down, but down significantly compared with 2019. Looking ahead, the mix of freight may change modestly as vaccination grows and social distancing diminishes, trucking activity should be solid in 2021.

One challenge for motor carriers is having enough capacity for shippers as there is strong freight in some sectors and the driver market is very tight. Recruiting and training drivers in the midst of a pandemic is a huge challenge. Truck driver training schools, due in part to social distancing requirements, are unable to train enough new drivers. Some schools remain closed, while those that are open trained between 20% and 40% fewer drivers in 2020 compared with 2019. Not only is the driver shortage back, it might be the worst we’ve seen yet. In response, motor carriers are boosting pay. This supply deficit is likely to remain for some time.

National Independent Automobile Dealers Association

Chuck Bonanno, VP of Dealer Development

During the early stages of the pandemic, there was substantial concern about lockdowns and the ability to operate dealerships. When the federal government deemed Car Dealers essential businesses, the mood changed greatly. Dealers were very quick to adopt safe methods to market, sell and deliver automobiles to the public. There were some obvious geographic differences in results between states that put into place very strict guidelines from those states that did not. The CARES Act stimulus checks provided consumers with down payment money and as lockdowns eased, consumers began buying cars. Many dealers experienced record months in May, June and July of 2020. This eased the concerns of dealers.

The unforeseen consequence of the lockdowns and shutdowns was the Franchise (New Car) Dealers not having New Car Inventory. They adapted by becoming Used Car dealers and keeping Trade-Ins normally destined for the wholesale market, the primary source of inventory for Used Car Independents. This created a severe shortage of vehicles and caused a significant spike in vehicle values. The values have softened of late but are still high as compared to the year earlier. This scenario has made it difficult to put the right vehicles at the right price and at the right time. At the same time Rental Cars were not coming out of the fleets, Leased vehicles were not being returned at the same rate and banks/finance companies did far fewer repossessions. These difficult conditions are finally changing, and our Dealers feel confident in vehicle acquisition in 2021.

Very few Independent Dealers failed during 2020, and those that did, typically had underlying financial/capital issues prior to the pandemic. The PPP program allowed our Dealers to keep staff and staffing levels near their pre-pandemic levels.

The Independent Dealers are optimistic about the upcoming year as long as we don’t fall into a nationwide, multi-sector recession or go back to any lockdowns. The need for reliable, privately owned vehicles is as strong as ever. With the new stimulus package and tax refund season upon us, the industry is ready to sell cars and looks forward to doing so this year.

Auto Care Association

Bill Hanvey, President and CEO

The U.S. automotive aftermarket is a pillar of the American economy – with more than 4 million professionals, the industry spans 538,000 auto care businesses, 273,000 service locations, 290 million vehicles, and is projected to account for $448 billion of the U.S. economy by 2023. While the pandemic and local shutdowns sharply impacted our industry, we have demonstrated tremendous agility to shift, readjust, and succeed. Amidst changing conditions and consumer behaviors, we look positively to the coming year as an opportunity to keep our industry running at full speed.

Vehicle Miles Traveled (VMT) is an industry bellwether: the more people drive, the more they spend on service, repair, and accessories. As local shutdowns began in late March, VMT decreased by 40 percent before gradually recovering throughout the summer. VMT is expected to be about 14 percent lower in 2020 than 2019 – our industry is watching this statistic closely in 2021.

We observed many interesting trends as the pandemic progressed, including:

• Sales in automotive parts, accessories, and tire stores dropped sharply in March/April, then soared from May through October as vehicle owners continued to care for their vehicles but delayed the work since they were driving less. Our service community took care of customers in preparation of summer road trips (e.g., sales of A/C parts increased year-over-year in the late spring/early summer), ensuring the condition of their vehicles for the longer term.
• As new car sales dropped throughout the summer, used car sales rose to higher levels relative to 2019. Buying a new vehicle was not practical for many given reduced driving patterns and lower income, despite historic incentives from dealers and manufacturers. This is particularly beneficial to independent repair shops, as used cars are often not bound to manufacturer warranties. The average age of light vehicles rose by a month to 11.9 years in 2020 and is expected to continue to increase throughout 2021.

The stickiness of several trends is of interest:

• On the consumer side, do-it-yourself activity increased significantly in the summer, and ecommerce gained traction for acquiring parts and accessories. The latter is part of an evolving channel trend across industries and ecommerce will continue as an important means of order fulfillment in 2021.
• With many moving from large cities to smaller cities/suburbs, the impacts on driving patterns, automotive maintenance and vehicle purchases are being monitored. Rather than drive to the office every day during peak commuting hours, many will work remotely, commute less frequently and at different times, then use their vehicles for more leisure activities. In turn, replacing “commuting” vehicles with more recreational vehicles may be on the horizon.

After dropping precipitously in the spring, industry sentiment as measured by our Business and Economic Confidence Indices steadily climbed back to “slightly more confident” in the summer, consistent with pre-pandemic levels. Both indices fluctuated modestly in the fourth quarter, reflecting concerns of renewed shutdowns due to rising COVID-19 cases, uncertainties regarding work and school patterns, and subsequent impacts on vehicle miles traveled.

Airports Council International – North America

Liying Gu, VP, Economic Affairs and Research

Air transport has remained one of the hardest-hit industries since the very beginning of the crisis and will likely be the last industry to emerge from recovery. U.S. airports are expected to lose more than $23 billion from March 2020 to March 2021 as a result of the COVID-19 pandemic, which represents a significant set back from previously forecasted stable growth prospects.

The ongoing pandemic has resulted in a full-scale transportation crisis with the imposition of travel restrictions and suspension of flights in a global effort to contain the spread of the virus. Passenger traffic volume at U.S. commercial airports is estimated to decrease by approximately 62% for the full year compared to forecasted 2020 levels prior to the pandemic. 2021 passenger traffic volume is estimated to decrease by approximately 41% compared to forecasted 2021 levels. In absolute terms, total passengers in 2020 and 2021 as a result of the pandemic are forecasted to be close to one billion lower than had been forecasted before the onset of COVID-19.

As airports experience sharp declines in traffic and passenger throughput, airports’ aeronautical and non-aeronautical revenues are expected to decline exponentially. Total airport operating revenue from March 2020 to March 2021 is estimated to decrease by at least $23 billion, driven by decreases in the number of passengers and cancellations/reductions of domestic and international flights, as well as reduced non-aeronautical revenue – including restaurants, retail, and parking – on a per passenger basis. Total revenue loss is expected to continue to increase as full recovery appears to be a few years away.

While aeronautical revenues are under pressure, the cost base for airport operations remain largely fixed as airports can neither close nor relocate their terminals during the outbreak. Additionally, 90% of non-aeronautical revenue is passenger-dependent, based on ACI-NA research.

U.S. airports’ debt burden has been increasing year over year in the past two decades to finance needed infrastructure improvements. Total debt outstanding for U.S. commercial airports at the end of fiscal year 2019 stood at over $107 billion. Total debt service payments to be made in the next two years is approximately $16 billion; cash payments which must be made regardless the level of traffic and revenue. Airports are faced with immediate cash flow pressures with limited ability to reduce fixed costs and few resources to fund capacity improvement efforts for longer-term future growth.

While many flights have been cancelled, airports remain open and operational as essential and critical infrastructure. U.S. airports face increasing operating expenses due to new custodial costs associated with enhanced cleaning strategies in public areas and restrooms, more and upgraded supplies, extra shifts and staffing, additional hand sanitizers in airport public area for passengers and employees, and additional education and training needed for airport employees and contractors.