LOUISVILLE, Ky. — Eaton shared its chief economist with trucking journalists this week, and while James Meil warned “headwinds and tailwinds are at work,” his message was one of opportunity.
“We think a recovery is clearly taking shape,” Meil said. “The manufacturing sector is rebounding, inventories are starting to come back, truckload pricing is firming and we think Class 8 capacity was about right three months ago.”
Meil said capacity utilization has reached the “sweet spot” of about 90%, up from a low mark of about 78% during the recession. In fact, he said a truck shortage is already materializing after the US trucking industry removed about 225,000 Class 8 trucks from the roads over the past several years.
“This was part of the belt tightening process to right size the truck fleet,” Meil explained. “(Capacity utilization) is starting to get back to the sweet spot. We think 90% was reached in November. We think you are now in a situation where capacity utilization is a fairly robust 93% and that means right now, there’s a truck shortage in North America based on our calculations. As of January, our best guess is you were dealing with a shortage of roughly 40,000 units. Don’t be surprised if by year end, the shortage starts to get to 100,000, 120,000 or even higher.”
Meil said the industry is essentially reliving the cycle it went through in 2004, which were prosperous times for the trucking industry.
“In early 2004, we started to see a revival of the economy, a revival in truck freight and by the end of the summer and into early fall, there was all kinds of talk about a transportation capacity shortage. We’re almost going through the same drill and almost at the same time of year as in 2004,” Meil said.
Of course, challenges remain as the industry emerges from one of the worst ever recessions. Meil wondered how equipment manufacturers will be able to keep up with demand as Class 8 truck orders surge an expected 55.6% from last year, to about 240,000 units.
“We haven’t had to do this in a long time,” he said. “We think we’re up to it, but we’re going to see.”
The overall truck fleet is older than it’s ever been, Meil pointed out. The next decade, Meil said, can be defined as the “Era of High Costs.” Fuel prices will be high and volatile, equipment prices will be high and volatile, a driver shortage will emerge and there’s no sign the government will stop introducing onerous new regulations.
While Meil said the US trucking industry shed 120,000 drivers during the recession, he also noted there are three million Americans who’ve lost manufacturing and construction jobs, so there’s a pool to draw from if wages become more competitive.
“The industry is going to have to pay these folks,” he said, noting trucking wages when compared to manufacturing and construction wages have been on the decline for 20 years. “In order to fill these seats, these trends might have to be reversed.”
While Meil’s message was overwhelmingly positive, he left journalists with a laundry list of 10 worries that keep him up at night: a rise in commodity prices; European financial weakness; Middle East instability; US inflation in 2013 and after; the feds’ ability to exit from its monetary easing; US state and local government finances/deficit; US federal government finances/deficit; China overheating; and the catastrophe in Japan.
“Overall, the economy is in a solid but not spectacular recovery,” Meil concluded. “The next three years are going to be terrific years for those on the supply side of the business and for motor freight operators themselves.”
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