SAN DIEGO, Calif.– The California sun wasn’t the only thing shining on the American Trucking Associations’ annual Management Conference & Exhibition held recently in San Diego. It appears the economic outlook is an increasingly bright one as well.
All four panelists participating in the popular ‘The Economy and its Impact on Trucking’ session had positive developments to share with the large audience of truck fleet owners from their respective vantage points on the US economy.
“We’re into a good period of time the last few months…Consumer sentiment has been positive for some time. Spending has been pushing up since the start of the year and will provide for a good bounce going into the rest of the year,” said Jack Kleinhenz, chief economist with the National Retail Federation, adding he is expecting “a solid holiday season.”
Growing consumer confidence is particularly important because consumer spending plays such a key role in the US economy (considerably larger than it does in Canada). US GDP since the end of the recession has averaged around 2.5%. More than half of that – 1.5% — has been driven by consumer spending, according to Kleinhenz.
E-commerce is also becoming an increasingly important element of retail sales with e-commerce related purchases approaching 6.5% of total sales.
There are also positive signs in the manufacturing sector. Chad Moutray, chief economist with the National Association of Manufacturers, said 87% of his association’s members are positive in their business outlook, according to a recent survey.
“That’s the most positive we’ve seen them in some time. It certainly looks like we are moving in the right direction,” Moutray said. “Manufacturers are optimistic for the next six months to a year.”
Both demand and output started making significant gains as of the third quarter of 2013 and rebounded this summer following weather-related contractions in the first quarter of 2014.
The growth experienced in the retail and manufacturing sectors is certainly being revealed in for-hire trucking related indices. Truckload freight loads, after a weather-related 0.3% drop during the first quarter, posted a 3.7% gain in the second quarter and a 3.8% gain in the third quarter. In comparison, they grew 1.5% in 2013. Taking a more granular look, ATA research shows year-over-year loads growth for the for-hire dry van sector at 2.4% year-to-date. The temperature controlled sector’s TL loads are growing at 3.2% year-over-year while tank truck loads are growing at 1.8%. The only negative is the flatbed sector which is showing a 4.3% decline year-over-year YTD. However the flatbed sector was among the first to benefit from the resurgence of the US housing market and the pace in loads activity may be difficult to maintain long term.
A particular area of concern has been the difference in how large carriers have benefitted from the economic recovery versus smaller carriers. Since the end of the recession, larger carriers have been much faster in bouncing back. That appears to still be the case but there is a distinct ray of hope revealed in the latest statistics. Large TL firms have experienced a 2.3% rise year-over-year in their loads; small TL firms are still suffering through a 1.7% drop in their loads. However, small TLs did experience a 2.3% gain in loads in the third quarter.
LTL freight loads didn’t enter negative territory during the harsh winter, managing to grow 4.9%, which was followed by 8.4% growth in the second quarter and 8.2% growth in the third quarter. In comparison, they grew 3.1% in 2013. In fact LTL loads are up 33% since February 2010.
“This speaks volumes,” said Bob Costello, the ATA’s chief economist who presented the trucking statistics and moderated the panel.
Could a return to rising energy pricing thwart US economic growth? Crude oil production is down worldwide, according to John Felmy, chief economist with the American Petroleum Institute, which would normally have led to price spikes. However, both crude oil and natural gas production in the US is on the rise and the added capacity is keeping higher pricing at bay domestically.
The increase in natural gas supply is also helping boost the near-shoring trend as some companies that used to invest in overseas production are now looking to seize the opportunities provided by lower energy costs at home, according to Moutray.
“Manufacturing has also learned to become a lot more lean, with a lot more technological innovation driving costs lower,” Moutray said.
The supply side of the equation is not quite as buoyant for the trucking industry. While the percentage change in the number of company and owner/operator tractors for the US for-hire TL sector grew by 2.6% in 2012, it barely registered growth at 0.1% last year and so far this year (to August) has actually shrunk by 3.5%. Costello said TL carriers, the smaller carriers in particular, are struggling with finding independent contractors.
Capacity changes are not as stark on the LTL side. The percentage change in the number of company and owner/operator tractors for US LTL carriers grew 1.7% in 2012, declined 1.6% in 2013 and YTD (August) has climbed by 2.5%.
“We are still down from the capacity peak of December 2007 by about 10%,” Costello said. “Things are getting tight and they’re probably going to get tighter.”
The rise in the driver turnover rate should also be of concern. As of the second quarter of this year it stood at 103% for large TL carriers and at 94% for small TL carriers. Large carriers hit their driver turnover peak back in 2007 with a mind boggling turnover rate of 136%. Adding fuel to the fire is the advancing age of the driver workforce. The median driver age is 50 in the for-hire LTL sector, 49 in the for-hire TL sector and 52 in the private fleet sector. In comparison the median age for all workers in the US workforce is just 42.
“We need to attract 96,000 drivers to this industry every year due to retirements,” said Costello.
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