By John Eichberger
As the world begins to reopen following the coronavirus pandemic, there are so many unanswerable questions about the future of transportation. Will the trends that prevailed as we entered 2020 resume their normal trajectory, or has the economic shutdown altered the course of the market? Will consumers, unleashed from their stay-at-home orders, flood into the streets to pick up exactly where they left off, resurrecting demand for transportation energy, or will their newly adopted behaviors and concerns about personal health result in a more measured resumption in economic activity? Will organizations who have now experienced the potential of telecommuting employ more flexible work paradigms and potentially reduce the footprint of their offices, or will the rush-hour commute return with a vengeance? And how in the world can I prepare my organization for the future when I am surrounded by such uncertainty? Nobody has all the answers, but our FUELS2020 Virtual Experience provided some perspectives to help us navigate the muddy waters ahead.
If you let your mind wander around the innumerable scenarios that may materialize in the coming months and years, it is enough to make you a little crazy—“Aye aye aye.” Luckily for me I can always find an appropriate soundtrack to get me through. During the shutdown, my six-year-old daughter and I rented the new Trolls movie, “World Tour,” which introduced her to the world of hard rock in a way that I truly appreciated. One of her favorite songs now is “Crazy Train.” Although she prefers the Trolls’ version rather than Ozzy’s, the song still makes her throw her horns. I think it is an appropriate tune for reflecting upon the future.
Consumers Embrace Private Vehicles
The FUELS2020 Virtual Experience kicked off with an assessment of consumer attitudes relative to transportation and mobility. Ryan Robinson with Deloitte shared findings from their Global Automotive Consumer Survey and added new perspective drawn from their Global State of the Consumer Tracker. One of the key findings earlier this year that I found fascinating was the decline in people who frequently use ride-hailing services. In the U.S., only 11% of consumers reported using such services at least once per week, compared with 23% who said so in 2017. While the number of people who claim to never use such services dropped significantly from 55% to 38%, the frequency number was shocking to me.
This trend matches pretty well with what Deloitte has discovered in the wake of the pandemic about people’s opinions about their vehicles. Nearly 80% of Americans surveyed the final week of April said that the idea of owning their own car was valuable to them, and nearly 60% said they plan to limit their use of ride-hailing services. This jives well with a recent KPMG consumer survey that found nearly half of the customers who were planning to buy a vehicle in the next six months are more likely to make that purchase due to the coronavirus. I have seen other surveys that also indicate consumers are more comfortable with the idea of using their own vehicle over any type of shared mobility option. How long they will feel this way remains to be seen, but the shift was already occurring before the pandemic, and it seems as if recent experience has accelerated the shift back to personally owned vehicles. (And since this article is titled “Crazy Train,” I will add that Deloitte’s survey showed the majority of people plan to limit their use of mass transit as well.)
Telecommuting Could Reduce Emissions
Once the dust settles and we are able to refocus on issues beyond the pandemic, the debates will return to which policies will be most successful in protecting the environment from transportation-related emissions. Earlier this year, the Fuels Institute hired Ricardo Consulting to conduct a comparative analysis of various strategies to determine their effect on criteria pollutant emissions, greenhouse gas emissions and the economy. For FUELS2020, Aneesh Padalkar provided a sneak peek at what they have learned to date. (Final report is due to be published summer 2020.)
With a keen eye to the current market situation, Padalkar shared their analysis of the impact telecommuting might have. I previously discussed the dramatic reduction in emissions associated with the economic shutdown. If more businesses adopt a telecommuting policy, how might that affect air quality in the long term? Padalkar shared that, according to the University of Chicago, it is estimated that about 37% of the American workforce can feasibly complete their work from home. If these people were to telecommute just one day per week, it would save each of them about $150 in fuel expenses and reduce national tailpipe emissions of CO2, NOx and PM2.5 by 5%. That is a significant drop in emissions without a major price tag affixed to it.
Resurrected Demand Could Flip Crude Oil Supply-Demand Balance
The global economic shutdown crippled demand for transportation fuels. At the same time, an oil price war between Saudi Arabia and Russia exacerbated an already-struggling market. The combination resulted in West Texas Intermediate crude futures trading far below $0 per barrel in mid-April. How long will it take for the market to stabilize? Debnil Chaudury with IHS Markit shared a pretty optimistic forecast.
IHS Markit projects the oil market to recover rapidly and reverse the current oversupply situation by as soon as the third quarter of 2020. This is due to a combination of reduced production in many producing regions of the world and a significant recovery in demand. Chaudury forecast that demand for oil would return to pre-COVID levels by the end of 2021. Of course, he acknowledged that a rebound of the pandemic and additional control measures implemented by governments would change this forecast. But he also noted that IHS Markit does not believe a second round of virus containment measures would have as significant an impact on demand as the first round did.
EVs Will Take Temporary Hit but Recover
Scott Shephard with Guidehouse (formerly Navigant Research) addressed the most watched trend in the automotive sector—what will happen with the growth of the electric vehicle market? Entering 2020, Guidehouse projected that the world would sell more than 12 million hybrid, plug-in hybrid, battery electric and fuel cell vehicles by 2025. The pandemic puts a major question mark on that trend.
Shephard reported that Guidehouse expects EV sales to drop 16% in 2020, which is a less dramatic loss than the vehicle market as a whole, which is forecast to drop 30%. Yet, this seems to be just a blip on the trajectory. Guidehouse expects the EV market to recover quickly and reach that 2025 projection despite the pandemic’s impact on 2020. Shephard noted that one of the major driving forces behind EV market development is government policy, which is not slowing down and in some markets is becoming even more aggressive, compelling manufacturers to press on with electrification strategies and redirect their market deployment strategies to aid regulatory compliance.
Preparing Your Business for the Future
The bottom line is that the number of variables that will determine how the markets emerge following the pandemic makes it impossible to accurately predict what will happen. The market insights provided by FUELS2020 speakers provide us additional context with which to evaluate the markets around us, which definitely helps make more sense of our options going forward.
But hope is not a strategy—it takes intentional effort. Dr. Oliver Schlake of the University of Maryland said that businesses must craft “future robust strategies” in order to flex their operations to match the needs of their customers, regardless of disruption occurring around them. He noted that too often such strategic plans are predicated on a familiar and recent experience (i.e., a plan is developed to deal with another pandemic) but that this is the wrong approach. It is essential to develop “business advance teams” that are focused on long-term market outlooks, and watch for signals that could prompt strategic adjustments. By creating multiple scenarios that could materialize due to circumstances beyond your control, you can begin to create plans and craft the skills necessary to remain viable in all potential scenarios.
Ozzie’s lyrics do not reflect a solid business strategy. Likewise, allowing the complexity of what the future may hold for us to swirl about in your head without any way of organizing your thoughts can run you off the rails. By leveraging the insights of market analysts and combining their perspectives with your own, you can start to make sense of the mess that is around us and begin developing those future robust strategies that can position your organization for long term success.
John Eichberger is executive director of the Fuels Institute. Founded by NACS in 2013, the Fuels Institute is a nonprofit tax-exempt social welfare organization under section 501 (c) (4) of the Internal Revenue Code. The institute is dedicated to evaluating issues affecting the vehicles and fuels markets. It commissions comprehensive, fact-based research projects that are designed to answer questions, not advocate a specific outcome. Fuels Institute reports address the interests of industry stakeholders – from business owners making long-term investment decisions to policymakers considering legislation and regulations that affect these markets. Visit the Fuels Institute at: https://www.fuelsinstitute.org/