Andy Jones, a London-based portfolio manager and analyst in AMP Capital’s listed infrastructure division, says the two parts of the transportation economy – freight and passenger – have behaved differently than they have in past recessions, opening opportunities for investors.
Normally, passenger and freight transport operate hand in hand. As economies grow, volumes rise. And as economies contract, both freight and passenger transport fall in predictable ways.
Not this time.
“The passenger economy has virtually ceased – people have stopped moving around,” said Jones.
“The summer vacation season in the Northern Hemisphere offered promise of a more rapid rebound in aviation traffic, however, disparate and uncoordinated national measures to control movement of people effectively limited demand, returning aviation to its state of hibernation. The silver lining for airlines and airports, is that the limiting factor for demand is not fear of flying, but temporary measures imposed to suppress infection rates”.
“However, the freight economy has shrunk by far less than we expected.”
“Usually in a recession or an economic contraction, you see international freight volumes shrink much more than passenger volumes. This time round it has been completely the opposite.”
The Apple data shows mobility bottomed in mid to late March in the US and Europe and that by early June, Germany and the US were back to pre-COVID levels, while hard hit European countries, like the UK and Italy, were only a few weeks behind.
Usually in a recession or an economic contraction, you see international freight volumes shrink much more than passenger volumes. This time round it has been completely the opposite.”
However, there was nuance in the data.
According to Apple Mobility Trends in data, in the USA, driving trends exceeded prior baseline levels relatively quickly (by June) but public transport usage still languishes 38% below pre-COVID levels1.
“We’ve seen various data points showing people are much happier to get into a car rather than get on a bus or get on the train,” says Jones.
“And you’d expect that to continue at least until people become comfortable, or until congestion becomes so bad that people are forced back onto public transport.”
Interestingly, some of the more successful countries at containing COVID-19 were showing a slower return to normal mobility. By early June, New Zealand, South Korea and Australia all remained well below the mobility patterns seen before the crisis, with secondary and tertiary mobility restrictions constraining the pace of recovery.
In contrast to passenger movement, freight suffered relatively less during the height of the crisis between March and May.
“As economies have reopened, freight trends have returned close to ‘normal’ levels, but passenger transport remains in the doldrums,” says Jones.
“Where you get the biggest exposure to freight volumes – as a pure freight operation – is railroads in the US,” says Jones. “This is an industry which has been evolving its operating model for much of the last decade, and was able to respond far more nimbly to the revenue shortfalls of Q2 and Q3 – even accelerating some aspects of structural change which may have taken years to execute in a business-as-usual environment.”
While Corona reassures his clients that the recovery is coming, he cautions it will take time and may differ from country to country.
“The severity, the length, the magnitude. It has been quite different. And because of that, the recovery is going to be different.
“It may take one, two, three, four, five years, depending on the answers, depending on the sectors, depending on a vaccine, depending on so many variables. We remain ready to invest where we see markets pricing in a permanent loss of demand that we think is not justified by our understanding of the assets.”