Fleet Management News & Business Info | Commercial Carrier Journal
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Economic Outlook thought,��� says No��l Perry, managing director for FTR Consulting Group and principal of transportation consulting ���rm Transport Fundamentals. Economic strengths include automobile sales in the range of 15 million annually ��� a ���gure consistent with 3 percent GDP growth, Perry says. Also, the housing market is on its way to a recovery, and unemployment is at 7.7 percent rather than the 9 percent most people would have expected at this point. ���For the last six months, the economic indicators have been mixed,��� he says. ���Nine months ago, they were more bad than good. Now they are more good than bad. This is not a synchronized recovery.��� And there���s another economic strength courtesy of Mother Nature���s wrath. ���We haven���t factored in yet the measurably positive impact of Hurricane Sandy,��� says Perry, noting that following Hurricane Katrina, there was a huge surge in trucking activity that clearly was attributable to the storm. Costello also sees bene���ts from Sandy. ���We could see some nice rebuilding in the Northeast and Mid-Atlantic, and that could help with ���atbed volumes,��� he says. Another plus for ���atbed is that housing starts are helping to offset drops in steel production. Donald Broughton is less optimistic about the prospects for freight demand in 2013. ���If current freight trends continue, it may be time to use the ���R��� word,��� said Broughton, chief market strategist and senior transportation equity analyst for investment bank Avondale Partners, speaking at last month���s CCJ Fall Symposium in Scottsdale, Ariz. Broughton cautions trucking companies against focusing too much on GDP numbers as an indicator of business conditions. While the most recent GDP report showed 2.7 percent growth ��� which was stronger than expected ��� it���s important to note that business inventories are included in the GDP calculation. ���We get a false positive because although inventories are up, retail sales are slower,��� he says. ���I bet most of you that took even a nanosecond to look at that report thought it sure doesn���t feel like we had 2.7 percent growth.��� Every freight indicator is weakening, Broughton says. Domestic truck tonnage was growing at less than 1 percent year over year, and now it is contracting. Meanwhile, air freight already is contracting domestically and in the transatlantic and transpaci���c markets. Rail carloadings are ���at to down depending on the commodity group, and international container volume is contracting. ���We are seeing a softening of the economy and presently don���t see the projected opportunities for 2013 that we saw in 2012,��� says Gary Hanke, president of Louisville, Ky.-based Pegasus Transportation. ���Customers already smell blood in the water on pricing due to slack demand,��� says Steve Gordon, chief operating of���cer of Paci���c, Wash.-based Gordon Trucking. ���It will be especially tough for smaller ���eets to reinvest at the current level of return. We���re expecting a nasty start to 2013.��� The hours rules ���will take at least some capacity out of the industry because it will take more trucks to haul the same amount of freight,��� says Costello, who quickly notes that ATA is challenging the regulations in court. That will come on top of a driver shortage that Costello ���xes at about 20,000 to 25,000. ���But it probably feels worse, because ���eets feel the quality of the drivers coming in isn���t what it was last year,��� he says. In the third quarter, large truckload carriers��� turnover rate remained more than 100 percent. Not since late 2007 has that ���gure been above 100 percent for two consecutive quarters, Costello says. ���Like in 2004, capacity will be short ��� maybe very short ��� and rates will go up,��� Perry says. ���There could easily be some supply chain failures.��� The challenge for all concerned will be managing through a capacity crisis; carriers will have to decide how much to increase driver pay, and brokers will be scrambling for trucks. ���Shippers will be trying to ���nd a way to avoid spot-market pricing and lock in capacity,��� he says. In addition to productivity challenges creating a shortage, we may see fewer trucking companies. Broughton, who is SUPPLY-SIDE SUCCESS? BIGGEST CHALLENGE IN 2013? Of course, there are two sides to the business equation: supply and demand. ���I think 2013 will be surprisingly tight on capacity,��� says Perry. ���It looks more and more like the Federal Motor Carrier Safety Administration will follow through with regulatory changes.��� In the near term, Perry is referring to the hours-of-service rule changes slated to take effect in July, including restrictions on the 34-hour restart that will limit its use in practice and a mandatory rest break during the driving day. Longer term, FMCSA will mandate electronic logging devices, and carriers will continue to adopt them in 2013 as a way to manage their Compliance Safety Accountability scores. Percentage of trucking executives who say issue will be top challenge Other 14% Fuel Costs 8% Driver availability 30% Regulation 10% Political climate Freight 12% Pricing 13% Freight Volume 13% The availability of quality drivers remains the top concern, but other worries are competing for attention. In the same survey last year, 67 percent said driver availability was the No. 1 concern. Source: Randall-Reilly Market Intelligence survey, November/December 2012, 218 respondents COMMERCIAL CARRIER JOURNAL | JANUARY 2013 29