Outlook for trucking guarded

Record high fuel prices, the potential for war in Iraq, and an economy still stuck in slow gear are clouding the prospects for trucking in 2003. However, if the United States does go to war against Iraq and wins quickly, then economic forecasters expect oil prices to drop and a mild economic boom in the U.S. by the end of the year, which, in turn, could boost freight demand for trucking. "Assuming

Record high fuel prices, the potential for war in Iraq, and an economy still stuck in slow gear are clouding the prospects for trucking in 2003. However, if the United States does go to war against Iraq and wins quickly, then economic forecasters expect oil prices to drop and a mild economic boom in the U.S. by the end of the year, which, in turn, could boost freight demand for trucking.

"Assuming a quick victory in Iraq and no long-term damage to the oil production facilities in the Middle East, the economy's growth engine should begin to roar early in the fourth quarter," said Dr. Rajeev Dhawan, director of the Economic Forecasting Center at the Atlanta-based Robinson College of Business.

According to his 'Forecast of the Nation' report released this week, Dhawan said the current hike in oil prices would continue through any U.S.-Iraq conflict and would take time to moderate, also causing the delayed rebound. However, as in previous recessions, the rise in oil prices should not lead to serious inflation.

"Inflation is currently at a benign 2% level which the Fed deems 'acceptable' and the economy is still below its potential," he said.

Bob Costello, chief economist for the American Trucking Assns., added that 2003 could be a decent year for the industry, barring any major terrorist strikes, a protracted war in the Middle East, or truly "astronomical" oil price increases.

"Total tonnage for the trucking industry was up 4.1% in 2002, though economic growth and freight demand slowed in the last three months of the year," he said during an interview with Fleet Owner.

Fleet bankruptcies were also down in 2002, dropping from a record 4,000 in 2001 to an expected 2,700 by the end of last year, he said. That positions the trucking industry well for growth in 2003 because many of the 'shakier' fleets have been weeded out since the economic recession began in 2001, leaving fewer players to handle freight volume increases, Costello said.

"The high cost of fuel will hurt everyone though and I expect a lot of casualties because of those high prices," he said.

Diesel fuel topped a record $1.70 per gallon average in the U.S. this week as oil prices have jumped to over $34 a barrel in the least two months. However, Costello said as long as oil prices don't get out of control, the chance of a double-dip economic recession remains low.

"Oil prices are extremely high and there's no indication at this point that fuel prices will let up. That makes it difficult for everyone, but especially for small fleets and owner-operators," Costello said. "That said, however, 2003 could be a decent year for trucking, especially in the second half, because there are very high barriers to entry and a substantial number of companies have exited the market."

Jeff Chung, director of USBX Advisory Services, added that the reduced number of carriers has helped "spread the freight pie around" and that as the U.S. economy grows this year, there could be a capacity shortage which could allow for freight rate increases.

"It could be a good year for transportation because the companies in business today have already weathered the tough times and instituted cost-cutting efforts," he told Fleet Owner. "For transportation companies, 2002 was a pretty good year and 2003 could be just as good, barring any catastrophic event."

In terms of economic projections, Dhawan expects growth to start slow and finish strong. He predicts that the U.S. Gross Domestic Product (GDP) will increase by 1.1% in the first quarter and only 1.3% in the second quarter of 2003, as both private investment and consumption remains depressed due to war worries.

However, Dhawan said he expects an acceleration of growth in the second half of 2003, especially in the fourth quarter, when real GDP grows by 4.5%. For the year 2004, real GDP growth is 3.6%, more than double the growth of 2003. Growth moderates to 3% in 2005.

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