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The outlook for freight: Will it stay strong?

A mix of good and bad is before trucking. But many business leaders still see bright days ahead.

There are a lot of mixed signals emanating from several economic quarters right now for trucking to ponder.

In terms of positives, the ongoing surge in Class 8 orders coupled with higher spot rates indicate the times are good to be in trucking.

Then, of course, are the negatives: a growing lack of truck drivers, which is putting upward pressure on pay (that really isn’t a bad thing though); the ongoing wrangling over the electronic logging device (ELD) mandate and Hours of Service (HOS) regulations, which is causing trouble in several trucking niches; and, alongside all of that, fears of a trade war with China and other nations.

So far at least the economic metrics seem to be holding steady. The Institute for Supply Management (ISM), for example, noted that activity in the manufacturing and non-manufacturing sectors of the U.S. economy keeps growing, albeit at a slower pace right now compared to the start of 2018.

For example, in the manufacturing sector, ISM’s inventory reading dipped 1.2 points month-over-month to 55.5 in March, the new order metric slipped 2.3 points month-over-month to 61.9 in March, while the group’s pricing index went up 3.9 points month over month to 78.1 in March.

The non-manufacturing sector index as a whole held steady at 58.8% in March, just a 0.7 percentage point lower than, which represents “continued growth” though at a slightly slower rate. ISM’s nonmanufacturing new orders index in particular dropped 5.3 percentage points month-over-month to 59.5 – a dip that indicated a “cooling off” of activity in the non-manufacturing sector that “possibly prevented an even stronger reading” for its monthly index. Yet “the majority of respondents [to ISM’s monthly survey] remain positive about business conditions,” added Anthony Nieves, ISM’s chairman

That “positivity,” for lack of a better word, is more evident in a broader poll of chief financial officers (CFOs) working for North American companies recently conducted by global consulting firm Deloitte.

The company’s CFO Signals survey for the first quarter discerned what it dubbed a “a surge in optimism” among CFOs about the current and future states of major economic regions, as well as their own company prospects – with their “net optimism” spiking to a high of plus 54 from the fourth quarter 2017 reading of 47, as 59% of the 155 CFOs polled by Deloitte said they were “more optimistic” about their own company's prospects, while just 6% were pessimistic

CFO assessments of the North American economy grew even stronger this quarter, Deloitte added, with nearly 90% of CFOs rating current conditions as good, up from 74% uin the fourth quarter of last year – a “new survey high by a wide margin,” the firm added – with nearly 60% expecting “better conditions” in a year.

All key business outlook metrics, tracked by the survey for 32 consecutive quarters, rose to multiyear highs, largely on skyrocketing optimism in the U.S., Deloitte pointed out. Revenue growth expectations rose from 4.7% to 5.9% and now sits at a two-year high, while expectations for earnings growth increased from 8.4% to 9.8%, which is the highest level in nearly three years, the firm stressed. Finally, expectations for growth in capital investment rose sharply from 6.5% to 11%, a five-year high, while expectations for growth in domestic personnel increased from 2% to 3.1% – again, a new survey high.

“Over the past year, CFO positive sentiment [has been] underpinned by positive assessments of the North American economy and, more recently, by rising perceptions of Europe and China,” said Sanford Cockrell III, national managing partner of the U.S. CFO program for Deloitte. “CFOs continue to be strongly optimistic this quarter, and confidence appears to be further bolstered by the passage of tax reform in the U.S. And for those companies that expect repatriated earnings, investment is far and away CFOs' top expected use for the windfall.” 

None of this, of course, is set in stone – expectations and projections can change quickly in business as we all know. Yet when the folks in charge of the financial stability of major North American companies still see a lot of green lights for their businesses ahead, that’s a very good sign – especially as more business activity means more freight for truckers and a change to book better rates. Let’s see if this outlook stays the course in the months ahead.

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