Features
Bumpy road ahead
Trucking continues to mirror the overall health of the economy

By Jami Jones
senior editor

 

Trucking isn’t easy and certainly isn’t for the faint of heart. That’s especially true right now

considering the jarring road the economy has led truckers down.

With record high fuel and oil prices, depressed housing and automotive markets, and the American consumer tightening the belt, it’s been a volatile 2007 for trucking.

Overcapacity continues to beset the industry. Record truck sales in ’06, despite a slowing economy, exacerbate the problem.

Fall freight was nearly nonexistent, painting a grim outlook for the holiday shopping season and beyond. Fuel prices continue to creep upward. As 2007 winds down, economists and analysts are even mentioning the word “recession” for some trucking sectors.

Even with the potentially grim outlook, the future probably won’t be as bad as other hard times that have fallen on the trucking industry.

 

Where we’ve been

Trucking has always mirrored the overall health of the U.S. economy. The current slowdown is no exception. Slowdowns and recessions in the trucking industry are nothing new. They tend to cycle around.

Seasoned trucking veterans like Herb Schmidt, president of CFI, know that is all too true. With more than 28 years in the trucking industry, the past 22 with CFI, Schmidt has been through a downturn or two.

“I’ve seen worse … In the 22 years here, I’ve seen two downturns that were significantly more difficult environments to operate in than the current one,” he said.

Schmidt said the downturn in 2001 pounded the industry, and the mid-1990s weren’t all that friendly an operating environment either.

 

Where we are

Even though the current situation might not be as bad as past downturns, truckers know it’s been an uneven road through 2007. If there is any comfort at all, trucking freight is not alone in teetering on the verge of a downhill slide.

The nation’s biggest retail stores, which all rely on truckers to stock their shelves, are reporting the slowest October in a dozen years.

The New York Times reports that Wal-Mart saw a rise in sales of less than 1 percent and that many retailers are offering deep discounts to clear out unsold products.

At the end of October, the Federal Reserve Board lowered a key interest rate another one-quarter of a percent to 4.5 percent. That was the second time in 2007 the Fed cut the interest rate. The board members of the central bank believe those two cuts are all that is needed to help the economy bounce back.

Fed officials contended the cuts should help avoid some of the negative effects on the economy that may crop up because of disruptions in financial markets and “promote moderate growth over time.”

The cuts came on the same day the government released economic stats that showed 3.9 percent economic growth in July through September. But many economists and financial watchdogs shot down any hopes of that growth continuing through the remainder of 2007 – some predicting less than half that.

The optimism was short-lived when trading on Wall Street plunged the following day. The drop of nearly 200 points was blamed on concerns about inflation and slower economic growth.

To make matters worse, on the first day of November a report from the Commerce Department showed consumers did not spend as much in September because of worries about the down housing market and problems in the credit market.

Strangely, other reports show unemployment is down and income is up. If that cold, hard-earned cash isn’t being spent, one has to wonder where it’s going.

“The real problem is that recently the U.S. consumer has gone into hiding – into hibernation,” said Donald Broughton, a longtime transportation industry analyst.

That hasn’t happened in more than a decade. The last time the U.S. economy went into a consumer-led recession was in 1990.

The economy cycles through highs and lows for various reasons and the reality that consumers are potentially pushing the economy into a recession doesn’t surprise Broughton.

“For lack of a better technical term – we were due,” he said.

With consumers spending less, the manufacturing industry showed signs of a downward skid. Although manufacturing numbers grew in October, they grew at their slowest pace since March. Some analysts even said growth in the manufacturing industry almost “stalled” in October.

“It’s clear that manufacturers are taking their foot off the accelerator,” Ryan Sweet, an economist with Moody’s Economy.com, told The Associated Press. “That reflects the growing uncertainty around the U.S. economy, frail business confidence and soft domestic demand.”

With manufacturing dropping, consumers spending less and fears of the unknown looming, the traditional increase in fall freight was nearly nonexistent, according to both owner-operators and mega-carrier executives.

“We’re well into a trucking recession, but more than a truck freight recession, we are in a general freight recession,” Broughton said.

“Rail freight volume is down. Intermodal is down. Even airfreight and parcel is down. It’s not just truckload and less-than-truckload that’s seeing the weakness. It’s broad-based.”

Heading into the fourth quarter of 2007 at press time, Broughton said the industry may not have seen the worst.

“In the next couple of quarters we may see the worst,” he said.

 

The road ahead

With news like that, truckers may feel like they’re stuck in the Big Dig with the lights off. But there is a light at the end of the tunnel.

In a strange twist of fate, the wildfires in California could very well provide the short-term shot in the arm needed to get at least some sectors in the trucking industry through the predicted lower freight levels.

Barron’s reports that insurance companies will absorb the losses on the homes, and the federal government will pump money into California for rebuilding. Those materials are going to have to come from somewhere, and it can’t all come from California.

The Federal Reserve interest rate cuts will help, but it will take a while for those to work their way into the economy, Broughton explained.

And for those who think being “weak” is bad, that’s not necessarily the case with the U.S. dollar right now. Having “weak” currency is actually going to help out in some areas in the near future.

“The upside is that the value of the U.S. dollar has dropped dramatically against the yen, euro and the pound,” Broughton said. “If the dollar goes down in value by 20 percent, it makes our manufactured goods 20 percent cheaper for Europeans, English, Japanese, whomever, to buy.

“It also makes it expensive to buy more and more goods from China.”

In other words, exports are going up, but imports have slowed down.

For 2008, Broughton predicts a pattern where the economy slowly starts to recover. Commodities and industrial industries will lead the way, according to Broughton.

“That means rails may see a freight increase before trucks do. Trucks will see it before airfreight does,” Broughton said. “More specifically, flatbed and truckload will see it before LTL and refrigerated. Things that are heavy industry and commodity driven will see it first.”

The million-dollar question is when the trucking industry will feel relief from the freight squeeze.

“We expect to see real improvement by April or May in 2008,” Broughton said. LL

jami_jones@landlinemag.com

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