Industrial outlook cloudy but solid overall economic fundamentals rosy for trucking industry

Mixed economic signals are proving to be somewhat of a Rorschach Test for shippers trying to gauge freight demand levels heading into the strongest part of the 2019 freight season.

On one hand, there’s a budding trade war with China. There are 25 percent tariffs on imported steel and 10 percent tariffs on aluminum. There is disillusionment with some of the Trump administration’s America First policies, but little disagreement that it has helped some domestic manufacturing industries.

The U.S. Chamber of Commerce is forecasting 2.6 percent rise in economic growth this year—down from the 3.5 and 3.4 percent rises in the second and third quarters of 2018—but up from the 2.3 percent growth in 2017. The 2.6 predicted rise in GDP growth is about what other major private economists have been predicting—with some exceptions.

J.D. Foster, the Chamber’s senior vice president and chief economist, noted that economic naysayers are suffering from what he calls an outbreak of “recession-aphobia,” which actually is not real. Noting that the U.S. economy created 312,000 jobs last December, Foster said the economic outlook for the country—and transports—is strong.

“Yes, the economy is slowing,” Foster wrote recently on a Chamber blog. “Gross Domestic Product (GDP) expanded by 4.2% in the second quarter, by 3.4% in the third, and is expected to slow further to about 2.6% in 2019. The economy is slowing from an unsustainable pace to a more sustainable pace,” he added. “But, as the commentators intone gravely, the slowing economy could slow further. And as a matter of straight line projections, if the economy kept slowing then we’d be at risk of a recession. When? 2020, of course.”

Foster said it’s “entirely possible” the economy could slip into recession in 2020. “Some disastrous policy mistake can never be ruled out, especially with so many trade war threats and overseas troubles in play,” he noted.

“But for the moment, there’s not a scintilla of a hint in the actual economy to suggest anything but a moderate easing toward a sustainable growth path,” Foster concluded.

What that means for trucking is anyone’s guess. But early signs in the New Year were of substantial capacity availability, at least in the spot market.

The number of available trucks on the spot truckload freight market jumped 77% during the week ending Jan. 12, well ahead of the 9% gain in available loads. That’s according to DAT Solutions, which operates the DAT network of load boards.

That surge in capacity and less urgency on the part of shippers knocked down national average rates for dry van, refrigerated, and flatbed freight, DAT added.

John Luciani, COO of A. Duie Pyle, a Northeastern regional LTL carrier, said he’s “bullish” on freight demand for the first half of the year.

“It started to build in 2017 and continued throughout 2018, which was a record year for us in volume, growth and operating results,” Luciani told LM. “That leads me to be bullish the first half of this year. After that we’ll take a wait-and-see approach.”

Trucking analysts, noting that the Institute of Supply Management (ISM) manufacturing index, the monthly composite index based on surveys of 300 purchasing managers throughout the United States in 20 industries in the manufacturing area, has declined recently.

The ISM New Orders Index registered 51.1 percent in December, a decrease of 11 percentage points when compared to the 62.1 percent reported for November. Nevertheless, that was the 36th straight month indicating growth in new orders (If the index is above 50, it indicates that the economy is expanding. Values below 50 indicate a contraction.)

Trucking analyst Scott Group of Wolfe Research recently noted that slowing ISM and lower oil are clearly risks to the financial health of the trucking industry. Contrary to popular belief, because the diesel fuel surcharge is adjusted weekly, carriers generally do not profit from either rising or lowering diesel costs.

Pitt Ohio President Chuck Hammel told LM that trucking freight demand levels “have certainly leveled off” from the highs of last summer. But he also added that trucking capacity has overall remained tight—good news for carriers, not so good for shippers.

Unquestionably, trucking has benefited from the manufacturing revival in this country. Last year, 264,000 new manufacturing jobs were added. That’s the highest number of new workers since 1988. As a percent of the total workforce, manufacturing rose for the first time since 1984.

Predictably, the Trump administration has been taking credit, and it’s framing current trade negotiations with China as a way of further increasing those numbers.

“Now, if you give us an opportunity to export more to China, bring those tariff walls down, bring those barriers down, if they give it to us, we will benefit, our trade gap will narrow, our exports will create jobs everywhere, including good-paying and, you know, hard-hat manufacturing blue-collar jobs,” Larry Kudlow, director of the White House National Economic Council, recently told Fox Business Network.

On the other hand, trucking executives are crediting the Trump administration with relaxing some environmental trucking regulations. Pitt Ohio’s Hammel called the current regulatory environment “fine.”

What is not fine for some trucking companies is the threat the Amazon revolution has produced. Some carriers have made a transition to the costly, unpredictable last-mile delivery market for smaller packages and consumer goods. But there are still gaps. With automated express shipping for most items, shipments of specialty goods like fine art, furniture, oversized or fragile objects has not yet been streamlined.

A recent report from ARTA, a logisitcs platform service that manages shipments, stated that U.S. online sales of non-conveyable goods has hit $30 billion--about 10 percent of total e-commerce sales. To some it’s a clear signal the trucking the industry needs a new approach to logistics.

ARTA has managed shipments to/from nearly 750 cities in 50 countries, and has fulfilled nearly 30,000 items to-date. ARTA says it has grown its customer base by 90 percent in just the last year. If that continues, it could either been a boon or handicap to trucking companies—depending where their operations are on the e-commerce curve.

“The market for buying and selling luxury items has exploded,” said Adam Fields, founder and CEO of ARTA. He said ARTA has been at the forefront of helping art dealers, auction houses, designers, businesses and consumers manage the end-to-end process, including providing stellar customer service from collection through the last mile.

“This industry needs an automated solution that allows for the fulfillment of specialized goods as easily as FedEx does for small parcel items, and ARTA is poised to deliver it,” he said.  He said ARTA has a “vast network” of more than 350 service partners helping deliver high-value, specialized goods purchased online.

How fast that market grows is another wild card in the 2019 trucking demand equation.