Tungpalan, Angel Erika

BS Economics 3A

Small business survival and COVID-19 – An exploratory analysis of carriers

i. Small businesses are more susceptible to cash flow problems created by the COVID-19
pandemic putting them in jeopardy of survival. This research utilized a case study
methodology that focused on small businesses in the trucking industry to assess the
impact of this pandemic on the supply chain. Power imbalances can occur in the supply
chain when certain parties act opportunistically. These imbalances are analyzed through
theories of Resource Dependence, Resource Orchestration, and Entrepreneurial
Orientation and embellished through the business failure and crisis management
literature. Using actual data, the study shows the power shifts in the supply chain. Using
qualitative data, the responses taken by these small businesses to survive the crisis were
reviewed. The sales data of these small businesses were then compared to a national
transportation index. The results of the comparison show more volatility among these
businesses than the index. Both small businesses utilized their entrepreneurial orientation
(EO) by taking forward-looking actions to reduce their risk exposure and avoid failure.
They also utilized resource orchestration theory by restructuring their resource portfolio
to lower their cost structures via selected layoffs. Finally, they took advantage of market
opportunities by obtaining PPP loans and pursuing new customer opportunities.

ii. The COVID-19 pandemic has created survival problems for most businesses regardless
of size. However, small businesses due to their financial limitations, customer base and
dependence on a few key employees, face a much more critical situation. Small
businesses often have limited access to public financial markets and are often more
susceptible to cash flow crises created by revenue changes. Short term cash outflows
exceed cash inflows creating survival problems.
 iii. Being able to navigate these short-term sudden business drops by managing short-term
costs is often the difference between survival and bankruptcy. The federal government,
realizing this situation, rushed to develop new programs to help contain the damage and
assist small business by creating the CARES Act which was signed into law on March
27, 2020. Additionally, loan assistance was also available through the Small Business
Administration’s Paycheck Protection Program (PPP).

iv. In this research we look at the impact of COVID-19 utilizing case studies with two small
businesses in the trucking industry. The overall analysis of supply chains in crisis indicate
they experience different degrees of power imbalances as certain parties act
opportunistically. We analyze these behaviors through Resource Dependence, Resource
Orchestration and Entrepreneurial Orientation (EO) theories. We show the changes in
power in the supply chain using actual data and describe the management actions taken
by these small businesses to survive under these depressed business conditions. Next,
actions are highlighted that small businesses are taking to deal with this crisis and
potential business failure through qualitative data gleaned from interviews. Finally, using
actual sales data, we compare the volatility of small business sales to a national
transportation index. Our data shows more volatility in our two carriers’ revenue in these
times, versus the broader index. We first provide an overview of the current pandemic
situation and then proceed to discuss the theoretical portion before moving to analyze the
conditions existing at the two carriers. We then summarize our analysis and provide
recommendations.

SUMMARIZED:

Small businesses are more vulnerable to the COVID-19 pandemic's cash flow issues, which
might put them in danger of going out of business. In order to evaluate the effects of this
pandemic on the supply chain, this study used a case study technique with a focus on small
trucking companies. When certain parties act opportunistically in the supply chain, power
imbalances may develop. Regardless of size, the COVID-19 pandemic has made it difficult for
most firms to survive. Small firms, however, are in a considerably more dire condition because
of their limited resources, clientele, and reliance on a few key staff. Small businesses frequently
have less access to the public financial markets and are more vulnerable to cash flow problems
brought on by fluctuating revenue. When short-term cash outflows exceed short-term cash
inflows, survival issues arise.

Impact of COVID-19 on businesses

“Unlike natural disasters, technical disasters, malicious acts, or terrorist events, the impact of a
pandemic is much more difficult to determine because of the unanticipated difference in scale
and duration. The nature of the global economy virtually ensures that the effects of a pandemic
event will be widespread and threaten not just a limited geographical region or area, but
potentially every continent. In addition, while traditional disasters and disruptions normally have
limited time durations, pandemics generally occur in multiple waves, each lasting two to three
months.” (Guide to Pandemic Planning, 2020).

The size and nature of this pandemic created chaos in many industries. The airline and lodging
industry saw demand come to a halt as business travelers were quarantined at home. Meetings
and conferences were held remotely, and some companies indicated this would not change.
Facebook chief Mark Zuckerberg announced in May 2020 that within a decade as many as half
of the company’s more than 48,000 employees would work from home (Conger, 2020).

According to the Institute for Business and Home Safety, up to 25% of businesses don’t reopen
following a major disaster. FEMA has this number at nearly 40%. No one likes to think about
disasters or losing key employees. However, when these events do happen, prepared businesses
are better off (Rowe, 2020).

The effect of the COVID-19 pandemic has been extensive. In a recent study by Veem (a global
payments network firm), eighty-one (81) percent of small U.S. companies surveyed expect the
new coronavirus pandemic to affect their business over the next 12-16 months, and nearly 90%
are bracing for an economic slowdown. While the prevailing outlook seems bleak, businesses
that were deemed essential or those that switched to working online actually benefited. “When
you look at the data, there’s surprising resiliency with these small and mid-sized businesses,”
said Veem chief executive Marwan Forzley. “Despite all the uncertainty, they are trying to make
changes in their businesses, to either benefit from the situation or repurpose their business so that
they’re not as badly impacted.” (Shala, 2020). However, a major problem is SMEs that lack the
ability and resources to cope with uncertainties are more vulnerable to risks like the COVID-19
pandemic, causing severe capital shortage (Zhu et al., 2020). Consequently, financial service
providers may significantly change their attitude toward financing SMEs and make
corresponding strategic adjustments that move their loan portfolios away from SMEs in response
to the pandemic (Goodell, 2020).

Government’s role in assisting business

The COVID-19 pandemic has caused businesses to stagnate and dis- rupted supply chains,
forcing numerous enterprises, especially small and medium-sized enterprises (SMEs), and
individuals facing great pressure in terms of capital shortage (Guo et al., 2020). Multiple
stakeholders, such as public administrations and regulators, have taken different measures to
support SMEs financially. Public administrations and regulators, for example, have issued a
series of supporting policies (Song et al., 2020). Realizing the severity of the crisis, the
government passed the CARES Act to establish several new temporary programs to address the
COVID-19 outbreak. They include the following: Paycheck Protec- tion Program; EIDL Loan
Advance; SBA Express Bridge Loans; and SBA Debt Relief (SBA, 2020).

Additionally, the Small Business Development Centers have been active in developing and
providing resources for small businesses to deal with the pandemic crisis including resiliency
guides and guides to pandemic planning. Unfortunately, in their research, Granja, et al. did not
find evidence that funds flowed to areas more adversely affected by the economic effects of the
pandemic, as measured by declines in hours worked or business shutdowns. If anything, funds
flowed to areas less hard hit. “According to an analysis by a group of University of Chicago

Research in Transportation Economics 93 (2022) 101087

The SBA’s stimulus program was created to help businesses pay their workers through the
Paycheck Protection Program. Applicants did not have to prove a sharp drop in sales or other
specific harm. But many of the most devastated businesses had already laid off workers and were
uncertain when their sales would return. Because the program’s rules require companies to
maintain their head count at pre-pandemic levels, those businesses have a much harder time
taking advantage of the program than companies that still have their full work force intact
(Russell & Cowley).

Existing efforts, however, have had less of an impact than expected. Some studies have shown
that the cash flow pressure of SMEs has not been significantly relieved even after the
implementations of self-help measures and external support (Bartik et al., 2020) while Zhu et al.
(2020) found that of the SME’s they surveyed, over 70% of cash flow pressure had not been
relieved significantly despite support measures. (Song et al., 2020).

Impact of COVID-19 on the trucking industry

In this paper we focused on two small U.S. based trucking firms. However, these firms are
impacted by what takes place internationally. According to the International Road Transport
Union (IRU) in Geneva, which represents operators in 80 countries, new freight contracts have
declined by 60%–90% since COVID-19 struck while empty runs have climbed by up to 40%.
For truckers shipping products such as car parts, clothes, flowers and construction materials,
operations have ground to an almost complete halt, the IRU said (Plume, 2020).

In the U.S., the Trucking Industry is being impacted significantly. In normal times, the U.S.
trucking industry is the backbone of the nation’s economy, leveraging its 3.5 million truck
drivers to deliver more than 71 percent of all freight tonnage valued at $10.4 trillion, generating
$796.7 billion in gross revenue (ATRIA, 2020).
IBISWorld updated its reports on both the Long-distance Freight Trucking Industry and the
Local Freight Trucking Industry as to how these industries are likely to be impacted as a result of
the global COVID- 19 pandemic. Revenue for the Long-Distance Freight Trucking industry has
been adjusted to decline 14.8% in 2020, due to reduced demand for industry services (Cook,
2020b). Revenue for the Local Freight Trucking industry has been adjusted to a decline of 13.5%
in 2020 due to reduced demand for industry services. As overcapacity influences the industry,
industry operators are anticipated to encounter revenue and profit de- clines (Cook, 2020a).

If the pain is prolonged, smaller U.S. carriers who are unable to spread their costs across a large
fleet could shut their doors. According to industry groups, these actions will put many skilled
drivers out of business and accelerate a longer-term shortage of truckers (Plume, 2020). The
American Trucking Association (ATA) estimates that 97% of trucking companies in the United
States operate fewer than 20 trucks, and 91% have six or fewer. Those workers rely more often
on one-off jobs than long-term contracts. At the Mexico-U.S. border, some truckers are carrying
just one full load south for every seven full northbound trips, well below the usual three-to-one
ratio, according to data from freight forwarder Nuvocargo (Plume, 2020).

The ATA’s Sean McNally says the trucking industry didn’t push for specific government relief
in the Federal CARES Act (Coronavirus Aid, Relief, and Economic Security), “but there are
many, many trucking companies applying for the Small Business Administration’s (SBA) PPP
program or are preparing to access the Exchange Stabilization Fund or other tax credits.
However, it may not be enough as we, eventually, prepare to start turning the key on re-starting
the economy. We are already engaging with many champions in Congress to make sure as these
programs are expanded, truckers have access to liquidity and a bridge to the better times we
know are coming.” (Garsten, 2020).

An indicator of trucking activity - The Cass Index

The Cass Freight Index® is a measure of the North American freight market. The monthly data
and the Cass Transportation Index Report provide valuable insight into freight trends as they
relate to other eco- nomic and supply chain indicators and the overall economy. Data within the
Index includes all domestic freight modes and is derived from approximately 36 million invoices
and $28 billion in spend processed by Cass annually on behalf of its client base of hundreds of
large shippers. These companies represent a broad sampling of industries including consumer
packaged goods, food, automotive, chemical, medical, pharmaceutical, OEM, retail and heavy
equipment. Annual freight volume per organization ranges from $40 million to over $2 billion.
The diversity of shippers and aggregate volume provide a statistically valid representation of
North American shipping activity (Cass, 2020). Later, we compare our two firms’ monthly
revenue over a thirty-month period to the Cass Index of freight expenditures.

SUMMARIZED:

The impact of a pandemic is much harder to assess than it is for natural catastrophes,
technological disasters, malicious acts, or terrorist incidents because of the unexpected difference
in scope and duration. Because of the structure of the global economy, a pandemic occurrence
will very certainly have widespread repercussions and pose a threat to every continent, not just a
small area or region. In addition, whereas pandemics typically occur in numerous waves, each
lasting two to three months, traditional disasters and disruptions typically occur over shorter time
periods. Due to the COVID-19 epidemic, supply chains have been disrupted and businesses have
stalled, putting a lot of pressure on small and medium-sized businesses (SMEs), as well as
individuals, to raise finance. Various players, including governmental administrations and
regulators, have taken various actions to financially support SMEs. For instance, public
administrations and regulators have released a number of enabling policies.

Consumer behavior during COVID-19 Pandemic

Around the globe, societies are in lockdown, and citizens are asked to respect social distance and
stay at home. As we are social beings, isolation may be harmful for us (Cacioppo & Hawkley,
2009). Feelings of loneliness have, among other things, been connected to poorer cognitive
performance, negativity, depression, and sensitivity to social threats. There are indications that
this is happening during the current pandemic, as there has been an increase in domestic
violence, quarrels among neighbors, and an increase in the sales of firearms (Campbell, 2020).
However, we have also seen an increase in other, more positive types of behavior caused by
social distancing that have not been researched. People have started to nest, develop new skills,
and take better care of where they live. For instance, they may learn how to bake, try to get fit,
do a puzzle, or read more. There has also been an increase in purchases of cleaning products, and
more trash is being recycled. At the same time, we are eating more junk food and cleaning
ourselves less. People are also stockpiling essentials, panic buying, and escaping to rural areas.
This is an indication that what is happening to us and our behaviors is complex, and it would be
interesting to study this phenomenon further.

Another consequence of the lockdowns is the extreme increase in the usage of Internet and social
media. Previous research has indicated that humans who feel lonely tend to use social media
more and, in some cases, even prefer social media over physical interaction (Nowland, Necka, &
Cacioppo, 2018). Social media also may bring out the worst in us through trolling or sharing of
fake news. This is, to some degree, not as damaging as the “real life” is lived in the physical
world and the Internet is an “add on” with, in most cases, limited impact on the physical world.
By this, we are able to compartmentalize and distinguish what matters and what does not matter.
However, the current situation has made social media the main mode of contacting or socializing
with others. In many cases, the Internet is at present also the main way to get essential supplies
and receive essential services, like seeing a doctor. The question, then, is what happens to us
when the “real life” is lived online and becomes a way to escape the physical world?

As humans, we rely to a large degree on our senses; we are built to use them in all situations of
life. Thus, we rely on them heavily when making decisions. However, the current isolation is
depriving us of our senses, as we are not exposed to as many stimuli as normal situation. Thus,
we are, in a sense, being deprived of stimulation. We are also being told by authorities not to use
our senses; we should not touch anything, wear a mask, or get close to other humans. Thus, what
happens once our societies open up? How long will this fear of using our senses linger, and will
we be over-cautious for a while or may we try to compensate as we have to some degree been
deprived of using them? These are just some aspects of consumer behavior; many more are
covered by this special issue.
SUMMARIZED:

Societies are in lockdown all around the world, and residents are being urged to respect social
distance and remain at home. Being alone could be detrimental to us because we are social
beings. Loneliness has been linked to a variety of negative traits such as negativity, despair, and
vulnerability to social dangers. There are signs that this is taking place during the present
epidemic, including an increase in domestic violence, disputes between neighbors, and handgun
sales. The massive growth in Internet and social media use is another effect of the lockdowns.
Previous studies have shown that lonely people tend to use social media more and, in some
situations, even prefer it to face-to-face conversation. Through trolling and the dissemination of
false information, social media may sometimes bring out the worst in us. Since "real life" is lived
in the physical world and the Internet is largely a "add on," the damage caused by this is, in some
ways, less severe. This allows us to categorize and separate what is important from what is not.

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