Current Trucking Climate like ‘Running in Mud’

October 04, 2016 by Clarissa Hawes

Truckers are struggling with a sluggish economy that this year could post the weakest rate of growth since the recession, economists said at an industry conference this week.

Bob Costello, chief economist of the American Trucking Associations, spoke Sunday at the trade group’s annual Management Conference & Exhibition in Las Vegas with Diane Swonk of Chicago-based DS Economics.

Growth in the U.S. gross domestic product will likely not exceed 1.6 percent this year, Swonk said. A healthy economy generally grows at an annualized 2.5-percent clip.

Bob Costella and diane Swonk

Bob Costella and Diane Swonk

“It’s as if we’re all running in mud, and the mud is the uncertainties of the global economy and slow growth,” she said.

The economy has derived what small stamina it has from consumers, Swonk said. Having benefitted from plunging oil prices, consumer debt has fallen to pre-2004 levels and shoppers are in the mood to spend.

“The economy has been running a relay race, with only one runner – the  consumer – carrying the baton for too long,” she said. “Next year, there will be more runners in the race to grab the baton, but they won’t be breaking any speed records.”

Costello said he is hopeful that truckers “are nearing the bottom of this cycle” after three weak quarters of growth dragged down by an inventory glut and idling factories.

“The current cycle of larger-than-normal inventories has taken longer than usual to resolve itself,” Costello said. “Coupled with weakness in the manufacturing sector, we’ve seen softer than typical volumes in both the truckload and less-than-truckload sectors.”

And even as freight demand shrank, carriers continued to add capacity last year, “which makes the current environment feel even more challenging,” he said.

Faced with too much space and not enough product to fill it, large fleets have lowered capacity by 4.4 percent year over year in 2016. But small fleets have boosted capacity 5.5 percent over the same period.

Some carriers added trailer capacity as they rushed to comply with a government mandate requiring truckers to monitor their working hours using electronic logging devices, or ELDs. Trailers can be easily connected and disconnected, speeding up the loading process.

“More small and medium fleets will, I believe, try to compensate for the impact of ELDs by doing more drop-and-hook to reduce wait times,” Costello said.

He also said that exports from the U.S. have surged 93 percent since 1995, with the value of goods headed to Canada and Mexico rising 168 percent over the same period. This bodes well for trucking, as demand will likely increase for cross-border hauling.

In the near future, the trucking industry could be headed for a modest rebound, Costello said.

“It may not always be top of mind, but trade is an important part of the trucking economy,” he said. “In the post-North American Free Trade Agreement era, we’ve seen growth in exports moved by truck outstrip overall growth of domestic freight over the past two decades.”

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