Declaring there’s much for trucking to be confident about, FTR Associates senior consultant Noel Perry contends that “no one should be worried” about freight growth as 2012 continues to unfold. What’s more, he projects that trucking will continue to enjoy “moderate” freight growth over the next several years.
Perry said during the research firm’s most recent “State of Freight” webinar that fully grasping where freight is heading requires reading the economic tea leaves carefully. “We are now in a decade of slow economic growth,” Perry said, “and no one should expect the level of growth we had in the ‘80s or ‘90s.”
He explained that holding such a great expectation has “created much negative thinking and commentary from many politicians and economists and much of that need to be tuned out because the economy is in a growth stage.”
According to Perry, while freight from 1983-2007 had grown at half the rate of the economy, “now because this decade has been more manufacturing- and export-driven, the freight rate has fallen by only a little bit—making this a really good recovery for trucking. But we are a long way back yet to the previous peak.”
He forecasts the new peak not coming “until at least 2015, assuming we do not have a recession mid-decade, which would push full recovery back into the next decade.”
He explained further that the annualized growth rate for this recovery has a U shape, with the dip having been caused by a combination of the Japanese tsunami, the European economic troubles and some slowdown here.
Whereas freight growth had lagged GDP growth, now said Perry, “GDP is becoming a freight multiplier, making us confident about 2012. With GDP up 2%, our forecast is for moderate freight growth. Barring overseas economic collapses, we project a couple good years ahead for trucking.”
Exposures to the economy are primarily the risk that economic events in Europe or China will drag the U.S. economy down as well as the seemingly endless domestic issue of debt.
“Europe is the smaller threat and is happening now,” Perry pointed out. “The recession there is only creating a modest drag. The China threat, though, is big and later. China is headed for its first recession in 30 years, but its cash reserves will keep its economy going as is a few more years. A recession threat here is posed by our sovereign debt—the government will have a gun to its head by mid-decade and [resulting] higher interest rates will slow the economy.”
Returning to where things are now, Perry explained that FTR’s bullish outlook rests on several key factors, including such positives as housing here at home and the global oil outlook.
“The housing numbers are starting to look better,” he said. “The existing inventory of homes is now back to almost normal, implying that people will soon start building new homes. Also, housing permit numbers have been up steadily since last fall. All this gives us hope that the construction of new homes will see a boost. It won’t be near the numbers seen in the ‘aughts,’ but it will still help the economy and trucking quite a bit.”
Perry pointed out that the fundamentals of the global oil supply are “looking good, with the long term outlook for the U.S. improving. Once the price for petroleum rose above $100 a barrel, the drillers began responding.
“The ‘teens’ will be a good decade for energy in the U.S. in general,” he continued. “We have the world’s largest supply of natural gas and we have been making surprising progress in curbing our dependency on oil imports. The latest reading on that is the U.S. is 25% below its 2008 peak.”
Perry also addressed the driver shortage, noting the cold hard fact that “due to demographics, it will get harder each year to find more people, which will boost labor rates by the end of this decade.”
He said the driver shortage has worsened also thanks to the “recessionary reductions in hiring capacity seen in 2011 vs. 2009. The shortage is now running at three times what it was in ’09. Having an impact, too, is that carriers also laid off driver-recruiters and they have not added them back yet.”