Economic Woes Top Concerns as a Year of Challenges Begins
By Daniel P. Bearth, Staff Writer
This story appears in the Jan. 5 print edition of Transport Topics.
Trucking’s difficulties are expected to continue this year, as many carriers struggle for survival while freight volumes fall, financial market turmoil continues and a new political landscape takes shape.
To counter a severe downturn in business activity, the Obama administration is expected to propose a stimulus package that could include hundreds of billions of dollars for infrastructure projects. At the same time, congressional leaders will begin work on a new multiyear highway funding bill to take effect in October, a measure that could include higher fuel taxes and tolls.
“The recession will be deep,” said Nariman Behravesh, chief economist for economic forecasting firm IHS Global Insight, “but the recovery is also likely to be strong.”
A multibillion-dollar stimulus package likely will contain a combination of tax cuts, infrastructure spending, transfer payments, help for local and state governments and aid for housing and the auto industry, Behravesh said.
Notwithstanding increased public spending, rising unemployment and high consumer debt levels are likely to suppress demand for goods and “negatively impact the amount of freight to be hauled in the United States,” said John Larkin, a stock analyst with Stifel, Nicolaus & Co. in Baltimore.
“Manufacturing was being held up nicely by the weak dollar and the appetite around the globe for U.S. exports,” Larkin said in a presentation in late November. “As the dollar has increased in value over the last few months, and as the rest of the world’s economy has slowed down rapidly, the export mini-boom that the U.S. had experienced has come to an abrupt halt.”
Independent analyst Edward Wolfe, formerly with Bear, Stearns & Co., said transportation traditionally is among the first industries to experience a recovery, as retailers rebuild inventories and manufacturers ramp up production.
“Sentiment is as bad as I have seen it in my 13 years on Wall Street,” Wolfe said in a note to clients, “but I remain bullish that a deep recession will give way to a gradual recovery at some point over the next three-to-four quarters.”
In Washington, trucking’s main focus will be on the highway reauthorization bill. The current six-year law expires Sept. 30, and a serious debate over how to pay for the maintenance and expansion of highway system is expected.
American Trucking Associations spent much of 2008 crafting the industry’s priorities for the upcoming legislation through its safety and sustainability plans.
Also on the regulatory front, trucking is braced for a potential battle with organized labor over legislation to make it easier to organize workers.
Teamsters union President James Hoffa, in an interview with CNBC shortly before Barack Obama won the election, said passage of the Employee Free Choice Act “will set off a whole new wave of [union] organizing and swell the ranks of organized labor by hundreds of thousands of new members.”
ATA has expressed opposition to the so-called “card check” legislation, which would waive the requirement for a secret ballot vote to verify employee requests for union representation.
“Any legislative proposal that denies a secret ballot election to workers or subjects employees and workers to mandatory binding arbitration is simply undemocratic,” ATA said on its Web site.
Meanwhile, recession has hurt not only motor carrier profits but also the outlook for truck sales. Since reaching a record in 2006 ahead of a change in federal engine emission regulations, truck sales have fallen in each of the past two years.
Economic forecasting firm FTR Associates said it expects a 10% drop in tonnage this year to further reduce demand for Class 8 trucks and dissuade many fleets from buying new trucks ahead of the next round of engine emission rules, which are scheduled to take effect Jan. 1, 2010.
Most truck makers will use selective catalytic reduction to meet the U.S. Environmental Protection Agency’s regulations, although Navistar Inc. has said it plans to use exhaust gas recirculation.
A year after truckers had to deal with $5-a-gallon diesel in some parts of the country, the Department of Energy said a repeat is unlikely.
Because of the slowdown, DOE said diesel is expected to average $2.47 a gallon in 2009, while gasoline will average $2.03. However, geopolitical uncertainty or natural disasters change these projections.
Looking ahead, Noel Perry, a partner with the freight forecasting firm FTR Associates, said he does not see enough growth in business activity to really change fundamental conditions in the industry until 2011. And the recovery, he said, will depend on how many carriers go under and how much freight-hauling capacity is removed in the process.
“I would say that 2010 is the year when we begin to get fairly substantial reorganization of the industry, including mergers and acquisitions,” Perry said.
