New economy

June 1, 2002
Some people think the new economy fizzled like New Coke. If you associated the new economy with such buzzwords as information superhighway, dot-com and B2B, there's good reason to be skeptical. But the real new economy is tucked inside a bottle that looks very old economy on the outside trucks. Despite all the dot-coms that have turned into dot-bombs, there have been permanent and fundamental changes

Some people think the “new economy” fizzled like “New Coke.” If you associated the new economy with such buzzwords as information superhighway, dot-com and B2B, there's good reason to be skeptical. But the real new economy is tucked inside a bottle that looks very “old economy” on the outside — trucks.

Despite all the dot-coms that have turned into dot-bombs, there have been permanent and fundamental changes in the economy. One of these is in the distribution chain. Online sales may be stuck at only 1% of retail sales, but even traditional retailers no longer carry the inventory they did a decade ago. Nor do they and their suppliers rely on the middlemen who used to occupy such an important niche in the supply chain. Instead, a combination of computers, communications innovations and highly responsive trucking services has made inventory a far smaller cost of business than it was even a decade ago.

To carriers that have made just-in-time delivery and rolling warehouses a reality for the past decade, this may not seem novel. But the recession, which exposed so many new-economy ideas as bankrupt slogans, also proved that what trucks do now is different.

Historically, the high production and sales rates that prevailed at the end of the 1991-2001 expansion would have meant bulging warehouses as soon as consumer spending dipped. But this time, manufacturers adjusted production in line with slipping sales. At all points along the distribution chain, inventory/sales ratios stayed down right through the recession.

For truckers, falling shipments meant less revenue. But it also meant trucking companies were able to cut their equipment purchases more rapidly than in previous downturns. In the old economy, the over-ordering of goods by shippers would also have left more carriers ordering equipment they didn't ultimately need.

What does this new economy have in store for carriers now that it's on the upswing again? For most, the outlook is good. Consumer purchases drive about two-thirds of GDP and an even higher share of truck movements. That's lucky for truckers, because consumers seem poised to keep right on buying houses, replacing cars, shopping and taking vacations — all of which will keep trucks rolling.

For truckers who serve manufacturers, exporters and other business customers, demand is back but it isn't robust yet. Many segments still aren't firing on all cylinders: business travel and conventions, advertising and media, telecommunications, and business-related construction. Office, factory and warehouse construction in particular are likely to languish until businesses have enough confidence and profitability to start hiring, producing and restocking inventories at pre-recession rates. Until they do, a lot of trucks will remain parked.

Another important generator of truck traffic is actually likely to do a U-turn. Governments have been big purchasers of goods through '01 and early '02. But now states are cutting back on spending as revenues have dropped below projections and unexpected outlays for public safety officers, unemployment relief and Medicaid have thrown budgets out of kilter. At the federal level, with spending up for military and security personnel, less is being earmarked for highways, public works and other categories that generate more truck movements.

The bottom line: Truckers who deliver to consumers should be rolling smoothly all year. But fleets that serve business may not get in gear for a few more months, and carriers that depend on highway or school construction projects and other government purchasing had better expect reduced speed ahead.

About the Author

Ken Simonson

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