Opinion: Not Quite a Happy New Year
By Bob Costello
Vice President and Chief Economist
American Trucking Associations
This Opinion piece appears in the Dec. 22 & 29 print edition of Transport Topics. Click here to subscribe today.
As if skyrocketing fuel prices in 2008 were not enough, American trucking companies are now in the midst of the worst recession since the early 1980s. Motor carriers that have spent decades in business battling slim profit margins and ever-increasing costs during the good times are now sputtering in the face of slumping manufacturing and an outright contraction in consumer spending.
Whereas ATA’s for-hire truck tonnage index was 116.2 (base year 2000) in June, it dropped 6.3% from July through October, marking the largest four-month decrease in more than eight years.
Like the overall economy, trucking has shed jobs, too. According to the U.S. Department of Labor, for-hire trucking has trimmed payrolls by 53,800 since January 2008, representing nearly 3% of the total job losses in the United States. The end result is that, in a very short period of time, America’s trucking industry has gone from solid performance to one of the worst times on record.
The government’s bailout process, which began with the first economic stimulus package last spring, temporarily pumped life into truck freight volumes. But the freight jumps of May and June were short-lived as more often than not, Americans used their stimulus checks to fill their gas tanks during $4-a-gallon gasoline prices. Similarly, by fall 2008, dry van loads contracted nearly a double-digit percentage from year-earlier levels.
Gross domestic product — adjusted for inflation — grew an annualized 0.9% in the first quarter of 2008 and 2.8% in the second quarter, partly on the heels of the economic stimulus. Then GDP contracted by half a percent in the third quarter. I project that GDP will contract at least 4.5% in the 2008 fourth quarter, if not more. The fall freight season — historically the busiest time of year for motor carriers — was nearly nonexistent, as retailers braced for tough holiday sales.
Unlike the recession of 2001, 2008 was markedly different. So, too, will be 2009. Simultaneous declines in consumer spending and manufacturing production are a fairly rare occurrence. Eight years ago, the economy stumbled because of a business-led downturn created by a burst in capital expenditures. Consumer spending continued to grow, however, mitigating the recession’s effects on the overall economy.
The reality today is that the current economy will turn around only after the housing market hits bottom. Until this happens, banks will remain less likely to lend money, while homes continue to depreciate. Consumers, in turn, will continue to refrain from spending their hard-earned dollars if their assets and investments are losing value. Rising unemployment will further compound the problem.
This time around, consumer spending on big-ticket items is expected to fall in 2009, after dropping nearly 4.5% in 2008. Furthermore, spending on nondurable goods — products with a usable life shorter than three years — is projected to increase negligibly in 2008 and 2009.
On the surface, trucking might appear to be one of the casualties of the market fiasco. Avondale Partners reports that more than 2,690 trucking companies with five or more trucks went out of business in the first three quarters of 2008 — and that figure is expected to climb.
But we’re in a long line of industries facing hard times. Trucking should not take this outlook as all bleak news. In some respects, the current shake-up in the marketplace is destined to help trucking down the road.
The history of the trucking industry has never been a stagnant one. It’s an ever-changing climate, routinely challenged by the economic cycles of consumer spending, fuel prices and manufacturing and housing trends. The current crisis is no different.
What is certain is that trucking will emerge a stronger industry.
Despite the weak economic times, trucking is maturing. Fleets that successfully weather the tough times will come forward with a new strength and a new insight into what it takes to survive and prosper. They will be better than ever at the business of moving freight.
By the same token, truck capacity will have tightened — the result of shrinking fleets and growth in the number of trucks exported overseas during the lean economic times.
History shows us that steep declines are followed by steep growth. And trucking always has been the first industry
to lead the U.S. economy. When the economy rebounds, the trucking industry will have implemented a well-functioning system destined to reap the gains of strong volumes in a strong economy.
American Trucking Associations, Arlington, Va., is a national trade association for the trucking industry. ATA owns Transport Topics Publishing Group.
