Trucking Sees Slow Growth in New Year

This story appears in the Jan. 7 print edition of Transport Topics.

The forecast for the year ahead for trucking looks a lot like what happened in the year just ended, with economic growth hampered by elevated levels of unemployment, weak spending by consumers and businesses, and ongoing uncertainty about federal spending and taxes.

On the regulatory front, carrier executives and industry observers say they expect the Obama administration to continue efforts to improve compliance with federal motor carrier safety regulations by requiring electronic onboard recorders on all trucks and offering other proposals to further limit the time drivers spend behind the wheel to counter the problem of driver fatigue.

The Federal Motor Carrier Safety Administration program Compliance, Safety, Accountability and hours-of-service regulations are, in fact, the two top issues for trucking, according to a survey of carrier executives conducted by the American Transportation Research Institute in the fall of 2012.

Labor issues will take center stage in 2013 as well, with the union representing workers for major less-than-truckload carriers and UPS Inc., the nation’s largest parcel carrier, negotiating new contracts in the year ahead.

Officials at ABF Freight System, one of the nation’s largest general freight carriers, will try to negotiate a separate contract for workers represented by the Teamsters union. The company currently is a party to the National Master Freight Agreement, which expires at the end of March.

A contract between the Teamsters and UPS expires July 31.

Port operators on the East Coast and Gulf Coast averted a strike by 14,500 members of the International Longshoremen’s Association in the closing days of 2012. The primary dispute involved royalties for dockworkers on the containers they lifted off ships with cranes. The two sides agreed to work with a federal mediator and set a new deadline for negotiations on Feb. 6.

Uncertainty over how Congress and President Obama will resolve differences over the budget and taxes is putting a damper on investment and undermining business and consumer confidence.

Investment in equipment and software is projected to grow but at a below-average rate of 2.9%, according to a Dec. 18 report by Keybridge Research for the Equipment Leasing & Finance Foundation.

Businesses have essentially “hit the pause button” on investment until there is a resolution to the so-called “fiscal cliff,” said William Sutton, president of the foundation and head of the Equipment Leasing and Finance Association in Washington, D.C. “If policymakers find a solution to key fiscal issues, we expect businesses will feel more confident in the second half of the year, leading to increased equipment investment,” he said.

More positively, the report projects growth in construction and transportation equipment investment to average 15% and 10%, respectively, in the first half of the year.

Mark Lauritano, an economist with IHS Global Insight, Boston, which helped to prepare the ELFF report, said the economy is the No. 1 concern for firms, with small businesses especially nervous about the economy. “Only 17% of small businesses indicated they were going to increase spending in 2013,” he said.

Adam Karson, a director of Keybridge Research in Washington, D.C., said while his firm does not expect a recession in 2013, the failure to reach a budget agreement could result in a slowdown in spending that “could be quite negative.”

The ELFF report calls for the U.S. economy to grow by 2.4% once major fiscal issues are resolved. Without a solution, growth is forecast to fall significantly below 2%.

Bob Costello, chief economist for American Trucking Associations, said a recession is still a possibility, even though Congress passed a stopgap measure that stops tax increases for most Americans and delays the beginning of automatic budget cuts by two months. “Clearly, it is good for the economy and thus trucking that we did not go over the cliff,” Costello said. “However, not all of the uncertainty regarding the cliff is gone as we still have the debt ceiling coming due in a couple of months. If the government defaults on its debt, the economy could head south quickly.”

Even if there is no recession, Costello and other industry observers expect freight volumes to be lower in 2013 than in 2012, despite encouraging gains in housing and autos. “I’m sticking with my forecast of just sluggish economic growth for much of this year,” Costello said. “Truck freight should build some momentum late [this] year and could be robust in 2014 and 2015.”

John Williford, president of global supply chain solutions at Ryder System Inc., Miami, said most companies have contingency plans if there is no agreement in Washington to avoid automatic spending cuts and tax increases in 2013. “We’re ready for that,” he said. “Most of our customers are, too, and will pull back on hiring and investments.”

Despite subdued expectations for business, Dennis Cooke, president of fleet management solutions for Ryder, said many companies are moving to replace older vehicles in their fleets with new trucks.

“There is a desire to replace those vehicles to get the benefit of more uptime and better fuel economy,” Cooke said. “A large number of vehicles were bought in 2006-07 ahead of a change in engine technology. Those vehicles are at the point where customers need to replace them.”

Cooke said corporate-owned fleets are expanding as well, and he expects demand for maintenance technicians to grow significantly in years ahead.

“We see the number of technicians in the workplace growing from 240,000 to 277,000 over eight years, driven by the complexities of new trucks and engines and a large number of people retiring from the industry,” Cooke said. “The shortage of technicians is becoming a big problem for the industry.”

With the economy growing slowly, Tom Sanderson, CEO of Transplace Inc., Frisco, Texas, said he expects supply and demand for freight hauling to remain pretty much in balance in the year ahead. “We don’t foresee a big capacity shortage in 2013, in part because I’m pessimistic about the economy,” he said. “Housing seems to be starting to recover, but it has a long ways to go to get back to normal levels. The auto recovery is well under way, but retail is muddling along as long as unemployment remains high.”

Shippers are also taking action to mitigate potential capacity shortages by shifting freight to rail, using new product packaging and designs, to allow more products to be stored in trailers and thus generating reduced demand for truck shipments.

The natural-gas boom has the potential to stimulate manufacturing in North America, but it won’t happen right away, Sanderson said.

“Manufacturing has not resumed growth,” he said. “Eventually it will, but in 2013, it’s not happening.”

Sanderson said while he doesn’t think companies are necessarily holding back investment because of uncertainty regarding the federal budget, taxes and spending, employers will remain reluctant to add new employees. “The cost of employing people is going up,” he said. “The incentive is to stay lean because companies are not sure of demand.”

Mark Rourke, president of truckload services for Schneider National Inc., Green Bay, Wis., said his company will limit the growth of its fleet in the next year in response to weak consumer demand.

“We will still invest on a replacement basis to improve the age of our vehicles, but we will not grow the size [of the fleet], except for niche operations, such as bulk chemicals, intermodal, private fleet replacement and dedicated contract carriage,” he said.

Rourke said Schneider has seen more private fleet replacement activity in the last quarter than any time in the past three or four years as corporations face more hurdles in justifying spending to maintain freight hauling operations. “That business is growing 20%, versus flat-ish growth for over-the-road truckload,” he said.

Demand for bulk chemicals is strong as lower natural-gas prices provide a boost for manufacturing and transportation service providers responding to increased energy exploration in North America.

“There is an unmet need in the management of inputs, like sand and water, for oil and gas drilling,” Rourke said. “There are a lot of moving parts, and the [drilling] activity is moving into new locations in more congested areas, creating a need for greater coordination and planning for delivery of components to keep drilling rigs going.”

While Schneider is testing use of natural gas as a fuel for its trucks, Rourke said he doesn’t expect widespread adoption of the fuel for over-the-road trucking until larger engines become available.

Low prices for natural gas, however, are helping to keep diesel costs down, Rourke said. “Not that long ago, we were thinking $5-a-gallon diesel,” he said. “Not anymore.”

Bill Matheson, head of intermodal for Schneider, said he sees continuation of a shift from truck to rail in the eastern United States as railroads improve intermodal freight facilities and establish new service between major freight markets.

He also sees an acceleration of cross-border freight between the United States and Mexico in response to a shift in manufacturing by automakers and others making goods for sale in North America.

On the technology front, industry experts said they expect to see a continuation of several key trends, including adoption of cloud-based software systems, new mobile applications and better utilization of data to help companies respond to changing market conditions.

“A lot of companies with transportation management systems are in a replacement cycle,” said Dawn Salvucci-Favier, vice president of global solution strategy for RedPrairie Corp., Alpharetta, Ga.

The ability of consumers to buy goods anywhere using online and mobile devices is also going to change the way goods are distributed. “This is creating added complexity to shipper networks,” Salvucci-Favier said. “We will see more drop shipments, more direct-to-store delivery and more localized distribution centers.”

Mike Lee, CEO of Airclic Inc., Trevose, Pa., said increasing regulatory requirements will drive demand for greater visibility and connectivity for food shippers in 2013. He added that having full visibility into the last mile of the supply chain is becoming critical. “We’re seeing this as a requirement in requests for proposals,” Lee said. “Shippers want to know what’s going on with carriers.”