The light at the end of the tunnel is not as bright as we had hoped
June 21, 2009
June 21, 2009
You know things are bad when our National Professional Truck Driving Championship gets cancelled due to a lack of sponsorship. The popular event was to be held in Abbotsford and Surrey, BC, in September and the organizers were looking forward to a banner event. But, as event chairman Shaun Garvey had to acknowledge, finding sponsors in this economic climate was too tough a task, and there was no other choice but to cancel.
The cancellation, which was announced shortly after we heard that the continent’s largest trucking company was going to ask the US government for a bailout (and since changed its mind) is just the latest in what has been a barrage of bad news since last fall. Is there no light at the end of this tunnel?
Actually, there might be. There are positive signals coming in now from a variety of areas.
Over the past two months Transportation Media in partnership with Dan Goodwill & Associates has hosted two educational seminars for both carriers and shippers. The well-attended seminars included a deep dive into the economic outlook and what I heard on both those occasions, the latter one in particular, was encouraging.
The experts are seeing a change in economic conditions after the sharp downfall of the past 9 months, according to Carlos Gomes, an economist with Scotia Bank. That downfall, by the way, has been the sharpest in the post war era.
Gomes gave several examples that indicate the North American economy has hit rock bottom and is ready to gradually climb its way back up. Automotive carriers may have felt the impact of the recession more than any others. By late 2008 cars were sitting on lots for more than 90 days, when 60 days is the norm. That caused car manufacturers to slash production from 13-14 million annually down to 5-6 million. And that of course had a distinct impact on the number of automotive shipments made available and naturally all the shipments of raw materials and parts that go into making a car. But Gomes said the auto sector has seen the worst of it and is beginning to rebound.
The same can be said of the housing market, traditionally a strong source of business for flatdeck carriers and carriers involved in the transport of housing-related goods. By 2006 housing in the key US market reached dangerous levels in terms of affordability and soon collapsed. That too is changing. The combination of dropping housing prices and low interest rates are making for very affordable housing right now. But it will take some time to clear off the inventory – houses are still sitting on the market for 10 to 11 months instead of the usual 5-6 months.
In another sign the worst of the recession may be behind us, Canadian exporters expressed optimism during Export Development Canada’s semi-annual Trade Confidence Index. Exporter confidence rebounded from the previous index more strongly than at any other time since the post-9/11 period.
And according to the experts at a recent FTR Associates webinar, the current recession is U-shaped – not V-shaped – and we’re now bouncing along the bottom. Key economic indicators have stabilized and FTR Associates expects to see positive GDP growth beginning next quarter and into 2010.
Good news indeed. But it’s not all good news. FTR Associates also pointed out that there won’t be a rapid rise from the ashes. And the modest GDP growth they expect to see in the near future doesn’t translate into a quick improvement in freight conditions. The economy has to be growing around 3% before we can get back to a 1% growth in freight, according to FTR Associates.
Truck manufacturers will have to be just as patient during the recovery, if not more so. North American Class 8 truck sales in 2009 will be 43% lower than in 2008, according to projections from ACT Research, and will only recover about half of that decline in 2010. The Class 8 fleet will end 2010 at the oldest average age on record. The company also projected medium-duty sales will be 26% lower in 2009 than in 08 and will grow 11% in 2010. Demand for trailers will also remain weak, according to the forecaster, thanks to the recession as well as structural issues that have increased average trailer life.
But at least the likelihood of a W-shaped recession – where there is a modest recovery followed by another recession – is receding. Gomes said that as long as the fundamentals continue to improve he doesn’t’ see the likelihood of heading back into recession.
Not exactly the strong light at the end of the tunnel we have been waiting for, but at least it’s not another oncoming train.
“If you don’t toot your own horn, there will be no music,”
president, ACM Consulting Inc.
With more than 25 years of experience reporting on transportation issues, Lou is one of the more recognizable personalities in the industry. An award-winning writer well known for his insightful writing and meticulous market analysis, he is a leading authority on industry trends and statistics. All posts by Lou Smyrlis