GLENDALE, Ariz. — The three-year freight implosion is over and, once the smoke clears, shippers will be faced with a much leaner trucking industry — and if the economy recovers quickly, trucks and truckers could be hard to find, or so an industry economist told a supply chain conference here May 12.
Speaking to the Transplace 2010 Shipper Symposium, ATA Chief Economist Bob Costello explained that after loads fell nearly 25 percent during the recession, the truckload industry has some readjusting to do. Critically, the historic drop in demand and freight rates “masked” a historic drop in supply.
“I think we are well on the way to supply and demand coming into equilibrium,” Costello said. “I would have guessed it would happen with the fall freight season, but it is happening even faster than I thought.”
In addition to fleet downsizing, the truck market has tightened more than usual this cycle as carrier failures remain high despite the growing economy, truck sales remain below the replacement rate, used tractor exports are at record highs, equipment utilization has improved and government regulations are making it harder and harder to get into trucking — and to stay in.
More significantly, Costello said he is “already getting phone calls” about a driver shortage.
“We knew that the fundamentals of why there was a driver shortage didn’t go away during the recession,” he said. “But it is returning a lot faster than I would have ever thought, especially considering the employment situation.”
Indeed, the economic big picture offers plenty of things to be hopeful about — most notably that last year is over.
“I am excited by what I’m seeing in the U.S. economy,” said Costello. “And I’ll tell you right up front, I think it is sustainable — in that I don’t believe another recession is imminent.”
That’s the good news, but Costello was quick to qualify his optimism: growth rates are good because business has been so bad for so long, and so improvements compared to last year are going to be easy to come by, at least for a little while longer.
Looking at the economic charts another way, however, the current levels still are nowhere near the peaks of three or four years ago.
Manufacturing is the “the big driver of freight,” he explained, because items produced in the U.S. result in more truck moves than do imported goods.
And while he expects a “very, very good” 5 percent growth rate for manufacturing, “two solid years of output” still won’t get back to pre-recession levels — and manufacturing is just one part of the economy.
“It is literally going to take years to recover in many sectors,” he said. “But we’re definitely moving in the right direction.”
Housing starts, for example, went from nearly 2.5 million per year to less than 500,000. So the housing numbers will look red hot as the industry doubles production in the next couple of years, but the total will still be well below the peak.
Similarly, retail sales show substantial improvement compared to the recent bottom of the cycle, but there’s a long, uphill pull ahead.
More complicated will be the employment situation, which is what drives consumption and, ultimately, freight. The economy is already adding jobs more quickly than it did following the 2001 recession, but Costello suggested again that “it will take years” to recoup the 8.4 million jobs that were lost.
“Don’t get too bogged down by the unemployment rate at this point,” he said, explaining that it will continue to be volatile as people who had given up on looking for work are now more hopeful — and therefore are showing up again at jobs offices and in the government statistics.
Even as the overall economy cut jobs by more than 5 percent during the downturn, larger truckload carriers cut jobs by 12.5 percent, and small TL carriers by 18 percent, according to the ATA.
“If this doesn’t go down as the Great Recession, I don’t want to see the Great Recession,” Costello said.
Unfortunately, the recovery isn’t coming on like “gangbusters,” as Costello might have anticipated, based on previous cycles.
“Even though it feels good, this is not a robust recovery,” he said. “But it’s good enough, especially for the carriers in the room.”
The projected 3 percent long-term growth rate for the economy is “not bad,” Costello added, and it’s “a heck of a lot better than 6 percent contraction.”
And while trucking has historically been “a fantastic leading indicator,” the industry did not lead the recovery “at all” this time, because retailers have been so cautious in managing inventories as sales plummeted. Essentially, goods haven’t moved.
“We’ve never seen anything like it,” Costello said.
As to the future, the economist emphasized that his “big concerns at this point are the long term,” pointing to the recent collapse of the Greek economy as an indicator of where the U.S. economy could be headed without some substantial policy corrections.
Specifically, the U.S. must get it’s debt under control: at the current rate, debt will equal gross domestic product in 10 years.
“If you talk to most economists, they’re going to make assumptions in their forecasting that government spending has to come down and taxes have to go up,” Costello said. “I don’t know that as a country our citizens are ready to tackle that yet. And I don’t think our politicians are.”
Kevin Jones of The Trucker staff may be reached for comment at firstname.lastname@example.org