2011: A Year of Industry Expectations Met and Unmet

For truckers, 2011 was a year full of expectations. Some of them were fulfilled, but many were not.

The economy continued to grow, but slowly, and not enough to put a serious dent in unemployment. However, there was enough growth to put trucks back on the road and allow carriers to raise freight rates.

On the regulatory and legislative front, concerns about a new hours-of-service rule for truck drivers remain (as yet) unrealized, while passage of a long-term highway funding bill remains mired in debate in Congress over how to pay for maintaining and expanding roads and bridges.

The Federal Motor Carrier Safety Administration did implement a new safety enforcement system called Compliance, Safety, Accountability, and CSA scores are quickly becoming the standard by which carriers and shippers assess the safety performance of truck drivers and fleets.

Another potentially significant and costly rule requiring nearly all trucking companies to install electronic onboard recorders is undergoing further review by FMCSA after a successful challenge to portions of it in court by the Owner-Operator Independent Drivers Association.

The U.S. Department of Transportation allowed Mexican trucks to cross the border and deliver freight anywhere in the United States under provisions of the 1994 North American Free Trade Agreement. A similar pilot program was stopped by Congress several years ago.

In August, the Environmental Protection Agency and the National Highway Traffic Safety Administration announced new fuel economy standards for medium- and heavy-duty trucks.

“Lord knows, we have a myriad of challenges,” Bill Graves, president of American Trucking Associations, said in a speech during ATA’s Management Conference & Exhibition in Grapevine, Texas, in October.

“We need to be careful not to become so obsessed with the challenges of the moment that we give up on the opportunity of the future,” Graves said. “. . . I really believe we are blessed with a country, with a people and with an economy that is capable of surviving anything our government can throw at it.”

Bob Costello, ATA’s chief economist, said he does not expect the economy to slip back into recession during 2012.

“A recession is not in the cards, at least not one as bad as 2008 and 2009,” he said. “If there is a recession, it will be like falling off a curb, rather than a cliff.”

Costello said Europe “may be in recession already,” and in the United States, disagreement over how to reduce the federal budget deficit will contribute to political and business uncertainty leading up to the presidential election in 2012.

Without an extension of current payroll tax cuts beyond 2012, for example, the rate of growth in gross domestic product could be reduced by “roughly 1%,” Costello said.

While holiday sales this year are expected to be up “nicely,” Costello said that volume gains of 4% likely will trail the 5.2% increase recorded in 2010.

Housing remains the primary drag on the economy, but Costello noted that “the downside risks are not that great.”

The key indicator for trucking is the number of housing starts, and Costello said it will be 2013 before that number gets back to 1 million a year and 2014 or 2015 to reach 1.5 million units a year, compared with 2 million starts a year during the boom years of 2005 and 2006.

Corporations are flush with cash but are investing in machinery and technology, not labor, because it is “less risky,” Costello said.

As a result, he said he expects that the unemployment rate will remain stuck around 9% or higher for the next two years.

“I put more stock in the number of jobs created,” he said. “Anything over 95,000 a month is good news.”

Manufacturing has been a source of strength for the economy and trucking, but that sector is showing signs of slowing down, Costello said, with growth in production this year expected to be 4.6%, compared with 5.8% in 2010.

A recent survey of auto industry executives by the accounting firm KPMG found that many have tempered plans for hiring and capital spending, in part because of concern about a slowdown in Europe and rising commodity prices.

Looking ahead, Costello said manufacturing growth is expected to be only 2.2% in 2012 and 3.7% in 2013.

Retail sales are up strongly this year, and business inventories remain lean, he said, but consumer confidence remains quite low.

“Clearly, there is a disconnect between what consumers are feeling versus what they are spending,” Costello said.

Trucking volume is “uneven, but growing,” he said, and the supply and demand for trucks is “roughly in balance.”

ATA’s truck tonnage index rose to 116.3 in October, a 5.7% increase compared with the same month in 2010 and within hailing distance of the peak of 121.6 in January 2005.

Both large and small fleets appear to remain cautious about adding freight-hauling capacity during driver shortages and higher operating costs, Costello said.

“Part of this is intentional downsizing,” he said. “Fleets are getting rid of freight that is not profitable.”

Despite the limited growth in fleet size, truck and trailer sales have exploded in 2011, following several years of below-normal investment.

Retail sales of heavy-duty Class 8 trucks nearly doubled in October and are up 55% through the first 10 months of the year, compared with the same time period a year ago.

While truck sales are up, Costello said he does not expect the number of new vehicles to upset the supply/demand equation, and sales levels are reasonably moderate by historical standards.

The price tag for new trucks is making it harder for many fleets to buy new equipment, industry analysts have said. Although trade-in values are rising, in part because used trucks are in short supply, truck dealers have said they see a growing gap between new and used truck prices.