So I got to listen to a wide-ranging and fascinating discourse on the state of the U.S. economy and where it might be headed courtesy of Jeff Kauffman last week at the annual transportation conference hosted by research firm FTR – a forecast that portended better things for trucking, but especially for trailers, than what FTR sees ahead.
But first, a little background; a little stage setting, if you will …
Eric Starks, FTR’s president and CEO, characterized Kauffman’s presentation as that of a “stone thrower,” meaning that while his firm’s outlook for the U.S. economy offered more warnings and weak spots, Kauffman’s offered an “alternative” outlook that different on many key points – usually in a more positive manner, though not always.
For example, while most of FTR’s economic experts – notably Larry Gross and Bill Witte – kept the impact of the ongoing presidential election out of their forecasts, Kauffman dove right in.
“The thing that concerns me is that both candidates are against trade; that could affect the supply of goods coming into the country,” he said.
Kauffman also noted that historically most economic recessions begin during the “new term” of a presidential administration – but not always.
In the case of the current track of the U.S. economy, Kauffman thinks we’re experiencing a massive “inventory correction” at the moment, whereby the ongoing de-stocking efforts by both industrial and retail sectors cause economic growth to flat-line and reduce freight volumes.
Add that to a financial market pull-back due to “jitters” over who will win the presidential race – a more polite term is “risk aversion,” said Kauffman – and it’s no wonder there’s been a lot of short term economic “malaise” of late.
Now, trailers fit into this story thusly:
- The ongoing “inventory correction” in Kauffman’s view should be wrapped up by the fourth quarter of this year, meaning freight volumes will once again starting increasing;
- The driver shortage will only continue to get worse, meaning new ways need to be explored to move more freight more efficiently;
- The productivity of trailers has as of yet only been thinly scratched. Thus, to Kauffman’s mind, they are no longer trucking’s “red-headed step children.” Instead, they represent a major unexplored opportunity to create solutions for many industry issues.
“The trailer industry is a fun place to be right now,” he stressed, and while he (thankfully) noted that “red headed step child” might not be the “best analogy” where trailers are concerned (not that MY red hair has anything to do with MY feelings concerning this term) Kaufman pointed out that trailers have largely been “ignored” due to all the mandated technological changes to trucks in recent years – exhaust emission controls being the most costly so far – and are thus ripe for investment.
“Trailer capex [capital expenditures] have been crowded out due to all the truck capex cycles in recent years,” he said. “The industry really under invested in trailers through the zeros [2000 to 2009] and that’s why I think the outlook for trailer investment is still good.”
For example, he noted that 150,000 or so trailers still haven’t replaced from what the late 1990s “super cycle” of trailer buying and thus remain a key source of replacement demand.
Kauffman also feels that with the driver shortage only projected to get worse, the creation of “trailer pools” may provide vital – and that, too, will require more investment in trailers by the trucking industry.
“They [trailers] are part of the solution of what ails drivers in this industry,” he stressed. “We’re simply not going to get any more productivity from the truck. And neither the population of trucks or drivers will grow as fast as freight demand in the future.”
We’ll see how that plays out.