Despite weak economy, freight may benefit

Despite weak economy, freight may benefit

Though economic growth is projected to slow overall for Japan, Europe, and particularly the U.S. through 2009, according to the Organization for Economic Cooperation and Development (OECD), exports from the U.S. are predicted to increase significantly – possibly leading to rising freight volumes in the year ahead

Though economic growth is projected to slow overall for Japan, Europe, and particularly the U.S. through 2009, according to the Organization for Economic Cooperation and Development (OECD), exports from the U.S. are predicted to increase significantly – possibly leading to rising freight volumes in the year ahead.

“U.S. activity is essentially flat through 2008 and then picks up thereafter as housing adjustment ends, credit conditions normalize and the effects of past monetary ease are felt,” said Jørgen Elmeskov, the OECD’s acting head of the economics department at the group’s annual meeting in Paris this week.

“With substantial capacity slack and under the assumption of unchanged commodity prices, inflation moderates significantly,” he noted. “[However] robust export growth, on the back of recent dollar depreciation, helps to narrow the external deficit to around 4.5% of GDP [gross domestic product] next year.”

Overall, OECD predicts that U.S. economic growth will drop to 1.2% this year, then to 1.1% in 2009, mirroring a fall in overall OECD-member nation growth rates to 1.8% and 1.7% for 2008 and 2009, respectively. Inflation in the U.S. is expected to peak at 3.2% this year before falling to 2% in 2009, while unemployment figures are projected to climb to 5.4% this year and to 6.1% by 2009.

However, the U.S. trade gap is expected to narrow by almost a full percentage point as the weak dollar encourages more exports. World trade volume is expected to increase 6.3% this year and 6.6% in 2009, while the trade balance in the U.S. is expected to fall to 4.4% by 2009 from 5.3% in 2007.

“Globalization was an important driver of the economic cycle on the way up as non-OECD economies exported both cheap manufactured products and surplus saving, helping to keep OECD interest rates low and thereby boosting asset demand and prices,” said Elmeskov. “Going forward continued rapid import growth in non-OECD countries will help to cushion activity in the OECD area.”

But he stressed that the world economy isn’t out of the woods yet – not by a long shot. “Both globalization and structural reform have boosted potential growth rates in the past and will hopefully continue to do so,” Elmeskov noted. “But sharply higher energy prices and higher costs of capital as a result of financial market developments could sap potential growth.”

High fuel costs, in particular, are affecting inflation rates and freight flows in the U.S., said Bob Costello, chief economist for the American Trucking Assns. (ATA), since the trucking industry hauls 70% of all domestic tonnage.

“Surging fuel prices are weighing heavily on consumers,” he said. “Since trucks haul virtually all consumer goods at some point in the supply chain, the industry is going to be significantly impacted both directly through higher diesel prices and indirectly as consumers pay more for gasoline and have less money to spend on truck-transported goods.”

Costello added that rapidly rising fuel prices are by far a bigger problem for the motor carrier industry than freight volumes, which remain lackluster at the moment. “Truck tonnage hasn’t grown since January of this year on a month-to-month basis, suggesting the overall economy remains very soft,” he said. “With that said, the fact that tonnage is showing sustained year-over-year growth is positive for the industry, although part of the strength is due to easy comparisons from 2007.”

View more Fleet Owner management news and other commercial trucking-related articles.

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